4imprint Group — Self-promotion boost to strong organic growth

4imprint Group (LSE: FOUR)

Last close As at 04/11/2024

GBP51.40

30.00 (0.59%)

Market capitalisation

GBP1,440m

More on this equity

Research: TMT

4imprint Group — Self-promotion boost to strong organic growth

4imprint’s interims show revenue growth of 16% (all organic) and a further small tick up in underlying operating margin to 4.8% (H118: 4.7%). The brand promotion initiative, launched in H118, is delivering online traffic and conversion better than initial expectations. We have again lifted our FY19 revenue and EPS forecasts, by 4% and 3% respectively. For FY20e the EPS uplift is 5%. Management’s revenue target of $1bn by FY22e looks likely to be achieved ahead of schedule. The group has five-year average cash conversion of 103% and a cash-rich balance sheet and we regard the current share price as well underpinned, with further potential upside.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Self-promotion boost to strong organic growth

Interim results

Media

31 July 2019

Price

2,800p

Market cap

£787m

$1.23/£

Net cash ($m) at 30 June 2019

41.4

Shares in issue

28.1m

Free float

97.5%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.7

4.9

46.0

Rel (local)

1.0

2.4

48.4

52-week high/low

2,800p

1,800p

Business description

4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. 97% of 2018 revenues were generated in the US and Canada.

Next events

Trading update

Early November

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5700

4imprint Group is a research client of Edison Investment Research Limited

4imprint’s interims show revenue growth of 16% (all organic) and a further small tick up in underlying operating margin to 4.8% (H118: 4.7%). The brand promotion initiative, launched in H118, is delivering online traffic and conversion better than initial expectations. We have again lifted our FY19 revenue and EPS forecasts, by 4% and 3% respectively. For FY20e the EPS uplift is 5%. Management’s revenue target of $1bn by FY22e looks likely to be achieved ahead of schedule. The group has five-year average cash conversion of 103% and a cash-rich balance sheet and we regard the current share price as well underpinned, with further potential upside.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

627.5

42.5

107.7

58.1

32.0

1.7

12/18

738.4

46.4

132.3

70.0

26.0

2.0

12/19e

845.0

54.0

150.7

82.5

22.8

2.4

12/20e

940.0

60.1

167.8

92.5

20.5

2.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Growth from new and existing customers

Despite the premium growth (US market growth is estimated by management at 5.0%), the group’s current market share is around 3.0%, leaving plenty of scope to expand its reach further. The brand promotion initiative is successfully reaching the target audience, with new customer orders ahead by 8% year-on-year and existing customer orders up by 16%. Marketing yield was broadly flat, which is a good result given the step up in spend and the change in the mix. Average basket size is ticking up with the greater proportion of apparel, which also has a small impact on working capital. Our revised estimates assume some moderation in the pace of revenue growth, to 13% in H219 and 14% for FY20, with a small increase in operating margin, although within the basic premise that management drives the top line through managing the marketing spend towards a stable margin.

Cash-rich balance sheet

The extension to the Oshkosh distribution facility to meet the higher levels of throughput is nearing completion, with the group’s capex spend of around $4m in H119. The project budget was $5m. Management has flagged the potential requirement for more office space, and we will build this into our modelling as and when the plans take shape. Our current projection is for year-end net cash of $39.0m (was $38.1m), climbing to around $58m by the end of FY20e (was $55m).

Valuation: Premium for quality, growing earnings

4imprint’s shares trade at a premium to quoted UK marketing services peers, but it has little in common with them operationally. The group’s long, positive trading record, high cash conversion and progressive dividend also single it out. A DCF on our updated numbers suggests a value of £26.01 (on conservative assumptions of a 9% WACC and 3% terminal growth), from £23.26 at the time of our last note, part lifted by sterling weakness. An 8% WACC assumption would generate a value of £31.31.

Further uplifts to forecasts on strong interims

We had lifted our FY19 revenue forecast by 2% at the time of the final results in March. By the time of the AGM statement in May, order intake was running 14% ahead of prior year and revenue was up by 16% for the first four months of the year, and this pace has been sustained through the subsequent two months. We have therefore now raised our full year revenue forecast to $845m from $812m. The FY19e EBITDA number also increases with the implementation of IFRS 16. At the pre-tax level, the increased depreciation/amortisation charge on the operating leases of $1.5m and an additional $0.1m of interest (prior year numbers are not restated) leads to a similar percentage uplift to the progression at the EBITDA level. We have also lifted our assumptions on the underlying interest, based on that achieved in the first half.

Exhibit 1: Changes to forecasts

Year end December

Normalised EPS (c)

PBT ($m)

EBITDA ($m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2018

132.3

132.3

-

46.4

46.4

-

48.5

48.5

-

2019e

147.0

150.7

+3

52.6

54.0

+3

55.7

57.5

+3

2020e

159.5

167.8

+5

57.4

60.1

+5

60.5

63.5

+5

Source: Company accounts, Edison Investment Research

We have also lifted our dividend projections, given that the interim dividend has been raised by 20%, on EPS up 21% in H119 year-on-year.

H119 results summary

The bridges to underlying operating profit for the period and prior year are shown below.

Exhibit 2: Summary H119 results

H119 ($m)

H118 ($m)

% change

Revenue

405.1

348.3

+16

Gross profit

131.7

112.9

+17

Gross margin

32.5%

32.4%

Marketing costs

(79.2)

(68.0)

+16

As % revenue

19.5%

19.5%

Selling costs

(15.3)

(13.6)

+12

As % revenue

3.8%

3.9%

Admin and central costs

(17.2)

(14.7)

+17

As % revenue

4.3%

4.2%

Share option related charges

(0.5)

(0.3)

+59

Underlying operating profit

19.4

16.3

+19

Underlying operating margin

4.8%

4.7%

Source: Company accounts

The slight tick up in gross profit margin reflects the increasing proportion of apparel in the product mix. The only movements in costs of note are 1) the increased admin and central costs as the senior team was reinforced to support the growing business, and 2) selling costs, which increased at a slower rate than the top line.


Exhibit 3: Financial summary

$000s

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

627,518

738,418

845,000

940,000

Cost of Sales

(422,299)

(500,531)

(569,846)

(633,918)

Gross Profit

205,219

237,887

275,154

306,082

EBITDA

 

 

45,092

48,507

57,529

63,473

Operating Profit (before amort. and except).

42,580

45,862

53,335

59,279

Intangible Amortisation

(464)

0

0

0

Operating Profit (after amort. and before except.)

42,116

45,862

53,335

59,279

Operating Profit

41,284

44,322

52,321

58,279

Net Interest

(122)

227

692

870

Net pension finance charge

(503)

(403)

(406)

(406)

Profit Before Tax (norm)

 

 

42,458

46,089

54,027

60,149

Profit Before Tax (IFRS)

 

 

40,659

44,146

52,607

58,743

Tax

(11,734)

(8,952)

(11,573)

(12,923)

Profit After Tax (norm)

30,724

37,453

42,853

47,625

Profit After Tax (IFRS)

28,925

35,194

41,033

45,819

Discontinued businesses

0

0

0

0

Net income (norm)

 

 

30,291

37,511

42,453

47,228

Net income (IFRS)

 

 

28,925

35,194

41,033

45,819

Average Number of Shares Outstanding (m)

28.0

28.0

28.1

28.1

EPS - normalised (c)

 

 

107.7

133.5

150.7

167.8

EPS - (IFRS) (c)

 

 

103.1

125.6

146.1

163.2

Dividend per share (c)

58.1

70.0

82.5

92.5

Gross Margin (%)

32.7

32.2

32.6

32.6

EBITDA Margin (%)

7.2

6.6

6.8

6.8

Operating Margin (before GW and except.) (%)

6.8

6.2

6.3

6.3

BALANCE SHEET

Fixed Assets

 

 

25,879

25,732

31,346

30,752

Intangible Assets

0

0

0

0

Other intangible assets

1,138

1,084

1,084

1,084

Tangible Assets

18,829

19,012

23,518

22,924

Right of use assets

0

0

1,108

1,108

Deferred tax assets

5,912

5,636

5,636

5,636

Current Assets

 

 

82,831

84,234

105,452

132,071

Stocks

7,940

9,878

11,530

13,083

Debtors

44,124

46,872

53,637

59,668

Cash

30,767

27,484

40,285

59,321

Other

0

0

0

0

Current Liabilities

 

 

(49,024)

(50,752)

(59,362)

(65,892)

Creditors

(48,878)

(50,752)

(58,077)

(64,607)

Short term / lease borrowings

0

0

(1,285)

(1,285)

Long Term Liabilities

 

 

(18,604)

(15,947)

(13,226)

(10,226)

Long term borrowings

0

0

0

0

Other long term liabilities (including pension)

(18,604)

(15,947)

(13,226)

(10,226)

Net Assets

 

 

41,082

43,267

64,210

86,705

CASH FLOW

Operating Cash Flow

 

 

44,576

45,583

59,200

64,000

Net Interest

(122)

227

692

870

Tax

(12,751)

(7,844)

(11,974)

(13,321)

Capex

(2,359)

(2,855)

(8,700)

(3,600)

Acquisitions/disposals

0

0

0

0

Pension contributions

(3,675)

(3,932)

(3,500)

(3,500)

Financing

(1,359)

(465)

(2,500)

(500)

Dividends

(15,845)

(32,984)

(20,814)

(24,093)

Other

0

0

(821)

(821)

Net Cash Flow

8,465

(2,270)

11,583

19,036

Opening net debt/(cash)

 

 

(21,683)

(30,767)

(27,484)

(39,000)

Net impact of disposals etc

0

0

0

0

Other

619

(1,013)

(67)

0

Closing net debt/(cash)

 

 

(30,767)

(27,484)

(39,000)

(58,036)

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by 4imprint Group and prepared and issued by Edison, in consideration of a fee payable by 4imprint Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by 4imprint Group and prepared and issued by Edison, in consideration of a fee payable by 4imprint Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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