IG Design Group — Outperformance in the bag

IG Design Group — Outperformance in the bag

IG Design has had a very good second half trading and has issued a year-end update indicating that numbers will exceed market estimates. We have lifted our FY17 and FY18 numbers by 8-10% at the pre-tax and EPS levels, following an 11% uplift to earnings with the interims. Particularly notable is the comment on strong cash flow, with the group reaching its target of average leverage less than 2.5x EBITDA two years ahead of plan. With the earnings and cash flow momentum, strong balance sheet and progressive dividend, there is good potential for further share price upside.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

IG Design Group

Outperformance in the bag

Trading update

Care & household goods

24 March 2017

Price

264.5p

Market cap

£166m

£1:$1.24

Net debt (£m) at end September 2016

76.4

Shares in issue

62.6m

Free float

53.8%

Code

IGR

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.6)

3.9

58.9

Rel (local)

(1.7)

(0.3)

35.3

52-week high/low

309.0p

145.0p

Business description

IG Design Group is one of the world's leading designers, innovators and manufacturers of gift packaging and greetings, social expression giftware, stationery and creative play products.

Next events

Prelims

End June 2017

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Anne-Margaret Crow

+44 (0)20 3077 5700

IG Design Group is a research client of Edison Investment Research Limited

IG Design has had a very good second half trading and has issued a year-end update indicating that numbers will exceed market estimates. We have lifted our FY17 and FY18 numbers by 8-10% at the pre-tax and EPS levels, following an 11% uplift to earnings with the interims. Particularly notable is the comment on strong cash flow, with the group reaching its target of average leverage less than 2.5x EBITDA two years ahead of plan. With the earnings and cash flow momentum, strong balance sheet and progressive dividend, there is good potential for further share price upside.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

229.0

9.6

11.8

1.0

22.4

0.4

03/16

237.0

11.1

13.5

2.5

19.6

0.9

03/17e

305.0

16.0

17.5

4.0

15.1

1.5

03/18e

325.8

18.1

19.3

5.0

13.7

1.9

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

Progress driven by US and Continental Europe

US progress, both organic and with the integration of Lang, is very encouraging and gives good momentum into the new financial year. Market opportunities are substantial as the group addresses new segments, such as the drug stores, and widens product categories. A shift in the Australian client base, disclosed earlier, will have restrained short-term profits but should boost margins in future periods. The UK, despite currency headwinds, is also broadening its market offer and internal reorganisation will help drive efficiency. The continental European business’s top line is growing well helped by customer expansion, with consequent efficiency gains boosted further by internal initiatives.

Cash converter

Our reports were once focused mainly on debt management (the group was 100% geared as recently as FY10). With the strong cash generation indicated in the update, we now expect the group to have ended its financial year with a very modest net debt position (£1.2m), down from the £10m we had previously forecast, and moving into net cash by end FY18. The half year will inevitably show a substantial number as the group has considerable working capital requirements. Peak net debt (normally end October, early November) will continue to rise as the business grows, hence the target focus being on average leverage.

Valuation: DCF implies further upside

The share price now recognises the group’s transformation from an indebted manufacturer in deflation-prone commodity markets into a confident, global, design-led, efficient partnership supplier to retail channels. However, a reverse DCF shows that the current share price assumes that either there is no medium-term growth or that EBITDA margins will fall. Given that the latter have been in a tight range of 6.8% to 7.4% for the last five years, even a modest growth assumption of 2% beyond the forecast period would indicate a share price of 308p. The strong cash flow generation and large step-up in dividend reinforce the positive outlook.

Exhibit 1: Financial summary

2014

2015

2016

2017e

2018e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

224,462

229,025

236,950

305,000

325,750

Cost of Sales

(185,244)

(189,048)

(193,552)

(248,575)

(265,487)

Gross Profit

39,218

39,977

43,398

56,425

60,264

EBITDA

 

 

16,352

16,227

16,505

21,500

23,950

Operating Profit (before amort and except)

 

11,320

11,692

12,909

17,400

19,500

Intangible Amortisation

(576)

(428)

(285)

(500)

(500)

Exceptionals

(2,298)

(1,235)

0

(800)

(400)

Share-based payments

(82)

(623)

(908)

(2,000)

(1,700)

Operating Profit

8,364

9,406

11,716

14,100

16,900

Net Interest

(3,177)

(2,726)

(2,763)

(1,400)

(1,400)

Profit Before Tax (norm)

 

 

8,143

9,589

11,054

16,000

18,100

Profit Before Tax (FRS 3)

 

 

5,269

7,303

9,861

14,700

17,200

Tax

(1,582)

(1,346)

(2,219)

(3,810)

(4,927)

Profit After Tax (norm)

6,643

8,243

8,835

12,190

13,173

Profit After Tax (FRS 3)

3,687

5,957

7,642

10,890

12,273

Average Number of Shares Outstanding (m)

57.5

58.1

59.3

61.6

62.6

EPS - normalised (p)

 

 

9.5

12.3

13.9

17.8

19.7

EPS - normalised fully diluted (p)

 

 

9.2

11.8

13.5

17.5

19.3

EPS - (IFRS) (p)

 

 

5.2

9.7

12.2

16.7

18.6

Dividend per share (p)

0.0

1.0

2.5

4.0

5.0

Gross Margin (%)

17.5

17.5

18.3

18.5

18.5

EBITDA Margin (%)

7.3

7.1

7.0

7.0

7.4

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

5.0

5.1

5.4

5.7

6.0

BALANCE SHEET

Fixed Assets

 

 

67,664

65,688

66,722

71,609

78,659

Intangible Assets

31,950

31,692

32,236

33,450

32,950

Tangible Assets

35,714

33,996

34,486

38,159

45,709

Investments

0

0

0

0

0

Current Assets

 

 

76,261

71,312

75,791

93,237

98,733

Stocks

48,460

46,162

46,006

56,257

60,085

Debtors

19,690

22,304

21,405

28,930

30,898

Cash

8,111

2,846

8,380

8,050

7,750

Other

0

0

0

0

0

Current Liabilities

 

 

(51,965)

(45,722)

(48,331)

(54,157)

(56,222)

Creditors

(39,139)

(39,982)

(42,765)

(52,407)

(55,972)

Short term borrowings

(12,826)

(5,740)

(5,566)

(1,750)

(250)

Long Term Liabilities

 

 

(34,799)

(28,694)

(22,810)

(11,856)

(9,356)

Long term borrowings

(32,232)

(26,479)

(20,297)

(7,500)

(5,000)

Other long term liabilities

(2,567)

(2,215)

(2,513)

(4,356)

(4,356)

Net Assets

 

 

57,161

62,584

71,372

98,833

111,814

CASH FLOW

Operating Cash Flow

 

 

13,724

17,851

20,744

27,500

24,800

Net Interest

(3,221)

(2,775)

(1,961)

(1,400)

(1,400)

Tax

(60)

(1,263)

(1,797)

(3,415)

(4,569)

Capex

(5,291)

(2,100)

(3,191)

(6,000)

(12,000)

Acquisitions/disposals

140

(1,451)

0

(2,794)

0

Financing/Other

1,225

(1,347)

74

5,086

0

Dividends

(1,014)

(829)

(1,032)

(2,672)

(3,141)

Net Cash Flow

5,503

8,086

12,837

16,306

3,690

Opening net debt/(cash)

 

 

42,138

36,947

29,373

17,483

1,200

HP finance leases initiated

296

0

0

0

0

Other

(608)

(512)

(947)

(23)

10

Closing net debt/(cash)

 

 

36,947

29,373

17,483

1,200

(2,500)

Source: Company 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by IG Design 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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.
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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by IG Design 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Prima BioMed — Initial LAG-3 combo data presented

Prima BioMed has presented encouraging early signs of efficacy from the TACTI-mel trial of IMP321 in combination with Keytruda, with one of the six melanoma patients in the first (1mg/kg) cohort experiencing a complete response. Recruitment in the second cohort is complete and the final cohort is expected to be fully recruited by Q317. Preliminary efficacy data from the 15-patient, run-in phase of the AIPAC breast cancer study are expected mid-year (recruitment in the 226-patient Phase IIb component is ongoing). Our valuation is unchanged at $192m ($9.24 per ADR).

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