Finally, no longer expensive, page-7

"Also much of the recent share price (i.e. last 5 years) seems to be the result of multiple expansion and currency movements. When I was looking at it I went back through the last 5 annual reports and once the revenue and profits were converted to USD the organic growth was much more modest (though still attractive). Also I couldn't but help notice that the multiples today seemed higher than a few years ago, although I agree that there is some justification for this since as the business has grown its quality has increased at a commensurate rate i.e. the same % of EBIT will lead to a much greater research budget and ultimately increase competitive advantage."

@andy777,

I compelled to thrash out the currency impact on the growth of the company, because the relative strength of the A$ is a very important consideration given the company sources 100% of its Revenues and Profits offshore.

The chart below presents - in the blue bars - IRI's Revenue (as reported, in A$) over the past 15 years (which is as far back as I have captured IRI's historical financial statements in my model).

Superimposed on the chart is the average annual A$:US$ exchange rate (the red line).

There are essentially two discrete periods of A$ trend:

1. Between 2003 and 2012, when it was strengthening (due to the commodity boom), going from under 0.60 to over 1.00.

2. Post 2012 to 2017, when it weakened, from >1.00 to ~0.75




Taking the first period (coinciding with a strengthening A$), as shown, IRI's Revenue - in A$ terms - grew from $27.5m in FY2003 to $48.6m in FY2012... an increase of 80%. In US$ equivalent terms, the increase over this 9-year period is almost threefold (or a CAGR of 13%pa).

Now, taking the second period (coinciding with a weakening A$), Revenue increased to $91m in FY2017, from $48.6m in FY2012... an increase of ~90%. Again, viewing this in US$ equivalent terms, it works out to be a 50% increase over this 5-year period (CAGR of 8%pa).

I guess that one simple and objective way to assess this is to look at the level of Revenue the last time the A$:US$ rate was the same as it is today, namely ~75c. That would be in FY2016, when IRI's revenue was $34.5m. For FY2018 it will be around $91m.

So that's a CAGR in Revenue of 8.5%pa over that 12-year period.

Importantly, all of this without having made a single acquisition, and without any recourse, whatsoever, to shareholders.


Then, in response to your comment about the share price performance having been driven mostly by multiple expansion and currency, the chart below is similar to the previous one, but this time it shows EBIT versus A$:US$ rate.

While there has been an element of re-rating of the stock in terms of the multiple expansion, as can be seen, the greatest contribution to the share price performance has been due to the increase in operating profits, which have increased by a factor of 2.2 times over the past 5 years in A$ terms (18%pa CAGR) and, notably, by a factor of 1.8x in US$ terms (corresponding to a CAGR of 13%pa).


Again, this impressive growth in both Revenue and EBIT - irrespective of the currency chosen through which to view it - has been achieved by pure organic means, and shareholders have not once been called upon to help fund the growth.

I suspect that not even 1% of the companies listed on the ASX can boast this sort of pedigree.