4imprint — Outperforming a challenging market

4imprint Group (LSE: FOUR)

Last close As at 17/12/2024

GBP48.10

−65.00 (−1.33%)

Market capitalisation

GBP1,356m

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Research: TMT

4imprint — Outperforming a challenging market

4imprint has continued to trade better than its underlying market across H124, with revenues 5% ahead of H123. The North American promotional products market recovered lost ground in Q2 to be effectively flat over the half, implying further market share gains for 4imprint, already the largest player but with a share of just 5%. The gross margin improvement posted in H223 from pricing and mix has continued and looks to be sustainable. We have trimmed our FY24 revenue forecast by 3% but lifted our pre-tax profit by 2%, with consequent adjustments to FY25, where we look for 6.5% top-line growth, predicated on a stronger US economy. We now publish our first thoughts on FY26 with similar growth and margin assumptions.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint

Outperforming a challenging market

H124 results

Media

7 August 2024

Price

£55.00

Market cap

£1,549m

US$1.27/ £

Net cash and short-term deposits at 30 June 2024

$121.5m

Shares in issue

28.17m

Free float

97.6%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.2)

(7.6)

5.1

Rel (local)

(8.3)

(5.9)

(1.2)

52-week high/low

£65.40

£42.55

Business description

4imprint Group is a leading direct marketer of promotional products in the United States, Canada, the UK and Ireland. In FY23, 98% of revenues were generated in the United States and Canada.

Next events

Q3 trading update

Early November 2024

Analysts

Fiona Orford-Williams

44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

4imprint is a research client of Edison Investment Research Limited

4imprint has continued to trade better than its underlying market across H124, with revenues 5% ahead of H123. The North American promotional products market recovered lost ground in Q2 to be effectively flat over the half, implying further market share gains for 4imprint, already the largest player but with a share of just 5%. The gross margin improvement posted in H223 from pricing and mix has continued and looks to be sustainable. We have trimmed our FY24 revenue forecast by 3% but lifted our pre-tax profit by 2%, with consequent adjustments to FY25, where we look for 6.5% top-line growth, predicated on a stronger US economy. We now publish our first thoughts on FY26 with similar growth and margin assumptions.

Year end

Revenue
($m)

PBT*
($m)

EPS*
(c)

DPS**
(c)

P/E
(x)

Yield
(%)

12/22

1,140

103.7

285.6

160.0

24.9

2.3

12/23

1,327

140.7

377.9

215.0

18.8

3.0

12/24e

1,394

150.0

404.6

240.0

17.5

3.4

12/25e

1,484

159.3

423.3

255.0

16.7

3.6

12/26e

1,580

170.1

451.2

270.0

15.7

3.8

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excluding special dividends.

Margin gains from marketing and product mix

H124 revenue was up 5% (+6% at the demand level), with operating profit up by 10%. This reflects the improved gross margin at 32.1% (H123: 30.4%), itself due to a more favourable product mix combined with pricing benefits and careful control of input costs. The greater flexibility that the group has on its marketing mix, with more TV/brand awareness in the mix, supports the margin at the operating level and, again, we see these improvements as sustainable. Revenue per marketing dollar has dipped slightly to $7.64 from $8.22 in H123, but it is worth noting that this is against an average of $7.18 over the last five years and $6.50 over the last 10. Customer retention was good (as usual), with order intake up 8%, compensating for the tougher market for acquiring new customers.

Strong cash conversion supports dividend uplift

4imprint ended H124 with net cash and short-term deposits of $121.5m, up from $104.5m at end FY23. Underlying operating cash flow conversion of 106% was in line with its long-term average (excluding the FY20/FY21 pandemic distortion). Our year-end projection is now for $133.7m (was $125m), despite the $20m spend on the distribution centre expansion. This allows for a meaningful uplift in the dividend (we now estimate 240c/share, up from 225c). The group has lease debt only.

Valuation: Below level indicated by DCF

The share price has performed well when compared to other marketing service stocks, up by 25% year-to-date against peers up 4%. A discounted cash flow (WACC of 9%, terminal growth of 3%, as before) generates an implied value of £63.92, up from £61.18 at the time of our May update note when the US$/£ rate was around the same level as now, implying some potential further upside.

Exhibit 1: Financial summary

$000s

2022

2023

2024e

2025e

2026e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,140,286

1,326,500

1,393,500

1,484,000

1,580,000

Cost of Sales

(818,670)

(924,600)

(948,364)

(1,012,088)

(1,077,560)

Gross Profit

321,616

401,900

445,136

471,912

502,440

EBITDA

 

 

108,428

142,600

151,000

160,400

170,200

Operating profit (before amort. and excepts.)

 

 

102,902

136,200

144,000

153,300

163,100

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Pensions and share options

(815)

(1,100)

(1,400)

(1,400)

(1,400)

Operating Profit

102,902

136,200

144,000

153,300

163,100

Net Interest

804

4,475

6,000

6,000

7,000

Net pension finance charge

0

0

0

0

0

Profit Before Tax (norm)

 

 

103,706

140,675

150,000

159,300

170,100

Profit Before Tax (IFRS)

 

 

103,706

140,675

150,000

159,300

170,100

Tax

(23,563)

(34,500)

(37,500)

(39,825)

(42,525)

Profit After Tax (norm)

80,143

106,174

112,500

119,475

127,575

Profit After Tax (IFRS)

80,143

106,174

112,500

119,475

127,575

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

80,143

106,259

114,000

119,475

127,575

Net income (IFRS)

 

 

80,143

104,374

112,500

119,475

127,575

Average Number of Shares Outstanding (m)

28.1

28.1

28.2

28.2

28.3

EPS - normalised fully diluted (c)

 

 

285.6

377.9

404.6

423.3

451.2

EPS - (IFRS) (c)

 

 

285.0

377.0

404.5

423.2

451.1

Dividend per share (c)

160.0

215.0

240.0

255.0

270.0

Special dividend per share (c)

200.0

0.0

0.0

0.0

0.0

Gross Margin (%)

28.2

30.3

31.9

31.8

31.8

EBITDA Margin (%)

9.5

10.8

10.8

10.8

10.8

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

9.0

10.3

10.3

10.3

10.3

BALANCE SHEET

Fixed Assets

 

 

47,940

51,400

65,200

68,100

71,000

Intangible Assets

1,010

1,010

1,010

1,010

1,010

Other intangible assets

957

490

490

490

490

Tangible Assets

29,255

34,700

49,800

52,700

55,600

Right of use assets

13,103

11,400

10,100

10,100

10,100

Deferred tax assets

2,381

3,800

3,800

3,800

3,800

Retirement benefit asset

1,234

0

0

0

0

Current Assets

 

 

192,353

186,900

222,397

271,763

329,719

Stocks

18,090

13,600

14,287

14,910

16,193

Debtors

87,511

68,400

74,010

76,452

83,026

Cash and short-term deposits

86,752

104,500

133,700

180,000

230,100

Other

0

400

400

400

400

Current Liabilities

 

 

(87,401)

(91,280)

(92,868)

(96,786)

(101,035)

Creditors

(85,966)

(89,900)

(91,608)

(95,606)

(99,755)

Short term borrowings

0

0

0

0

0

Lease liabilities

(1,435)

(1,380)

(1,260)

(1,180)

(1,280)

Long Term Liabilities

 

 

(12,672)

(12,520)

(11,540)

(10,298)

(9,098)

Long term borrowings

0

0

0

0

0

Lease liabilities

(12,315)

(10,920)

(9,940)

(9,940)

(8,740)

Other long term liabilities

(357)

(1,600)

(1,600)

(358)

(358)

Net Assets

 

 

140,220

134,500

183,190

232,779

290,586

CASH FLOW

Operating Cash Flow

 

 

101,317

166,900

145,500

158,300

167,600

Net Interest

699

3,900

6,000

6,000

7,000

Tax

(20,755)

(33,800)

(33,500)

(37,325)

(40,025)

Capex

(8,011)

(9,700)

(22,100)

(10,000)

(10,000)

Acquisitions/disposals

(1,700)

0

0

0

0

Pension contributions

(4,367)

(6,500)

0

0

0

Financing

(866)

2,500

(900)

(900)

(900)

Dividends

(18,722)

(110,800)

(64,600)

(69,222)

(73,687)

Other/ Capital portion of lease repayments

(2,432)

5,250

(1,200)

(500)

200

Net Cash Flow

45,163

17,750

29,200

46,353

50,188

Opening net debt/(cash and short-term deposits)

 

 

(41,589)

(86,752)

(104,500)

(133,700)

(180,000)

Net impact of disposals etc

0

0

0

0

0

Other

0

(2)

(1)

(53)

(89)

Closing net debt/(cash)

 

 

(86,752)

(104,500)

(133,700)

(180,000)

(230,100)

Source: 4imprint accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by 4imprint and prepared and issued by Edison, in consideration of a fee payable by 4imprint. Edison Investment Research standard fees are £60,000 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 2024 Edison Investment Research Limited (Edison).

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.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by 4imprint and prepared and issued by Edison, in consideration of a fee payable by 4imprint. Edison Investment Research standard fees are £60,000 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 2024 Edison Investment Research Limited (Edison).

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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