4imprint Group — Branding awareness

4imprint Group (LSE: FOUR)

Last close As at 20/11/2024

GBP49.25

−145.00 (−2.86%)

Market capitalisation

GBP1,388m

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Research: TMT

4imprint Group — Branding awareness

4imprint’s trading update shows the spring 2018 brand marketing campaign continuing to generate supplementary revenues, as was the case at the interims. We have again edged our forecasts ahead (around 1% at both the revenue and earnings levels), to the higher end of the previous range of market estimates. There is still a substantial opportunity to exploit, given the market size (estimated by ASI at US$23.6bn) and the group’s leading position. While the group trades at a premium to the UK marketing sector, the drift in the share price has made the valuation more attractive, particularly on a DCF basis. The group remains highly cash-generative, with funding growth and a progressive dividend.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Branding awareness

Trading update

Media

1 November 2018

Price

1,810p

Market cap

£509m

£1/US$1.28

Net cash ($m) at 30 June 2018

26.5

Shares in issue

28.1m

Free float

91.9%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.0)

(3.5)

(1.5)

Rel (local)

(0.5)

5.9

5.1

52-week high/low

2,260p

1,575p

Business description

4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. 97% of 2017 revenues were generated in the US and Canada.

Next events

FY18 update

Mid-January 2019

FY18 results

Early-March 2019

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Neil Shah

+44 (0)20 3077 5715

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

4imprint’s trading update shows the spring 2018 brand marketing campaign continuing to generate supplementary revenues, as was the case at the interims. We have again edged our forecasts ahead (around 1% at both the revenue and earnings levels), to the higher end of the previous range of market estimates. There is still a substantial opportunity to exploit, given the market size (estimated by ASI at US$23.6bn) and the group’s leading position. While the group trades at a premium to the UK marketing sector, the drift in the share price has made the valuation more attractive. The group remains highly cash-generative, with funding growth and a progressive dividend.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

558.2

38.4

98.7

52.5

23.5

2.3

12/17

627.5

42.5

107.7

58.1

21.5

2.5

12/18e

725.0

45.1

126.9

65.0

18.3

2.8

12/19e

797.5

52.3

147.0

80.0

15.8

3.5

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

Marketing driving upgrades

The marketing campaign was designed to improve awareness, moving the brand ‘front-of-mind’ within the target audience. The use of traditional media to achieve this aim was initially regarded with some scepticism, but it has been more successful than expected, with momentum rolling into H218 from both new customers and in stimulating return visits from existing customers. Management indicates that the $7m allocated for FY18 will all be spent, given the returns achieved. In March 2018, when the project was announced, we were forecasting FY18 revenues of $692m and PBT of $42.5m. These were raised in May and again in July with the interims.

$1bn revenue target by FY22

To achieve management’s ambition of US$1bn of revenue in FY22, top-line growth beyond our published forecast period would need to be at a CAGR of 7.9%. From FY11 to FY17, the group grew its top line by 18.1% CAGR. We have slightly more circumspect growth assumptions in our modelling, but the CAGR from FY11 through FY19e is nevertheless 16.7%. The growth target therefore looks eminently achievable, given the group’s market share of around 3.0%.

Valuation: A drift too far

The share price is down around 20% from its peak, hit in early September. While 4imprint continues to trade at a healthy premium to the UK small-/mid-cap marketing service companies (which are currently valued at a FY18e EV/EBITDA of 7.6x and a P/E of 10.8x), they have significantly different business models and (often) more volatile financial histories. A DCF, based on the growth required to hit the FY22 $1bn revenue target and on EBITDA margins returning to FY17 levels post the marketing project, suggests a share price of 2120p.

Exhibit 1: Financial summary

$000s

2016

2017

2018e

2019e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

558,223

627,518

725,000

797,500

Cost of Sales

(374,137)

(422,299)

(490,350)

(537,803)

Gross Profit

184,087

205,219

234,650

259,697

EBITDA

 

 

40,766

45,062

48,214

55,436

Operating Profit (before amort. and except).

38,377

42,580

45,050

52,272

Intangible Amortisation

(499)

(464)

(464)

(464)

Operating Profit (after amort. and before except.)

37,878

42,116

44,586

51,808

Operating Profit

34,696

41,284

43,886

51,108

Net Interest

(24)

(122)

45

50

Net pension finance charge

(521)

(503)

(503)

(503)

Profit Before Tax (norm)

 

 

38,353

42,458

45,095

52,322

Profit Before Tax (FRS 3)

 

 

34,151

40,659

43,428

50,655

Tax

(9,672)

(11,734)

(9,120)

(10,638)

Profit After Tax (norm)

28,681

30,724

35,975

41,685

Profit After Tax (FRS 3)

24,479

28,925

34,308

40,018

Discontinued businesses

0

0

0

0

Net income (norm)

 

 

27,773

30,291

35,625

41,335

Net income (IFRS)

 

 

24,479

28,925

34,308

40,018

Average Number of Shares Outstanding (m)

28.1

28.0

28.0

28.0

EPS - normalised (c)

 

 

98.7

107.7

126.9

147.0

EPS - (IFRS) (c)

 

 

87.3

103.1

122.5

142.7

Dividend per share (c)

52.5

58.1

65.0

80.0

Gross Margin (%)

33.0

32.7

32.4

32.6

EBITDA Margin (%)

7.3

7.2

6.7

7.0

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

6.9

6.8

6.2

6.6

BALANCE SHEET

Fixed Assets

 

 

25,050

25,879

26,179

26,779

Intangible Assets

0

0

0

0

Other intangible assets

1,082

1,138

1,138

1,138

Tangible Assets

18,938

18,829

19,129

19,729

Investments

0

0

0

0

Deferred tax assets

5,030

5,912

5,912

5,912

Current Assets

 

 

65,662

82,904

84,633

107,619

Stocks

4,179

5,356

6,064

6,671

Debtors

39,800

46,781

53,562

58,918

Cash

21,683

30,767

25,007

42,030

Other

0

0

0

0

Current Liabilities

 

 

(40,363)

(47,821)

(53,575)

(58,330)

Creditors

(40,363)

(47,675)

(53,429)

(58,184)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(21,024)

(18,869)

(15,476)

(12,476)

Long term borrowings

0

0

0

0

Other long term liabilities (including pension)

(21,024)

(18,869)

(15,476)

(12,476)

Net Assets

 

 

29,325

42,093

41,761

63,592

CASH FLOW

Operating Cash Flow

 

 

46,804

44,576

45,900

54,475

Net Interest

(23)

(122)

45

50

Tax

(9,423)

(12,751)

(9,470)

(10,988)

Capex

(3,267)

(2,359)

(3,000)

(3,300)

Acquisitions/disposals

0

0

0

0

Pension contributions

(17,354)

(3,675)

(3,700)

(3,600)

Financing

(270)

(1,359)

(1,420)

0

Dividends

(12,141)

(15,845)

(34,115)

(19,614)

Other

0

0

0

0

Net Cash Flow

4,326

8,465

(5,760)

17,023

Opening net debt/(cash)

 

 

(18,381)

(21,683)

(30,767)

(25,007)

Net impact of disposals etc

0

0

0

0

Other

(1,024)

619

0

0

Closing net debt/(cash)

 

 

(21,683)

(30,767)

(25,007)

(42,030)

Source: 4imprint accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4imprint Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4imprint Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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