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Exit of Ingham's CEO sparks analyst jitters

Emma Rapaport  |  12 Jun 2018Text size  Decrease  Increase  |  
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Morningstar analysts are concerned about the outlook for poultry producer Ingham’s following the abrupt departure of chief executive Mick McMahon.

Ingham’s (ASX: ING) announced on Thursday that McMahon would step down as chief executive – after only 2½ years in the role – after the company’s full-year results in August.

He will be replaced on an interim basis by chief commercial officer Quinton Hildebrand while the company considers internal and external candidates.

In a statement McMahon said it was during strategy planning that he made his decision to step away.

“As we started work on preparing the next three-to-five-year strategy, it was the moment for me to make a decision about whether I wanted to commit for the years ahead,” McMahon said.

“After four years of intense focus and commitment to the company, its employees and shareholders, it was clear to me that now was the time to begin the search for the new chief executive officer.”

Morningstar gaming and consumer equity analyst Daniel Ragonese says the decision is cause for concern as McMahon leaves at a crucial time.

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"McMahon’s decision to step down part way through a major transformation program, for which he has been a key architect and an advocate, reduces confidence in the company's longer-term outlook," Ragonese says.

Analysts were also surprised by the timing of the announcement, only eighteen months after the Ingham’s stock was first floated on the stock exchange.

The market echoed Morningstar’s concerns as the stock price fell more than 9 per cent on the news. Despite the decline, from $4.09 before the market opened to $3.72 at close on Thursday, analysts continue to believe the stock is slightly overvalued compared to its fair value estimate ($3.50).

Ingham's chief executive Mick McMahon

Outgoing Ingham's chief executive Mick McMahon

Ingham’s chairman Peter Bush said McMahon would stay on in a consultancy role until the end of the calendar year “to assist with an orderly leadership transition.”

McMahon is currently overseeing the early stages of the company’s transformation program “Project Accelerate”, a program to improve efficiency across the company and deliver cost savings through investment into automation, network rationalisation, and labour productivity improvements.

Ragonese describes the project, which will target gross benefits between $160 million and $200 million over five years, as a "key selling point through the initial public offering process."

Central to McMahon's role was leading Ingham's through its transition from a privately-owned company to an ASX-listed company. He benefited from the November 2016 listing, receiving a one-off cash payment of $4 million, along with $2 million in Ingham’s stock. The stock cannot be sold until two years after the listing date (7 November 2016), which occurs shortly after McMahon is due to leave the company. 

McMahon joined Ingham's in January 2015 as the executive chairman and was appointed chief executive in February 2016.

 

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Emma Rapaport is a reporter for Morningstar Australia.

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