Big gains in marketing productivity

4imprint Group 10 August 2022 Update
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4imprint Group

Big gains in marketing productivity

Half year results

Media

10 August 2022

Price

3,310p

Market cap

£930m

US$1.20/ £

Net cash ($m) at 30 June 2022

67.1

Shares in issue

28.1m

Free float

97.6%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

39.0

15.5

19.4

Rel (local)

33.3

11.6

18.4

52-week high/low

3,350p

2,240p

Business description

4imprint Group is a leading direct marketer of promotional products in the United States, Canada, the UK and Ireland. In FY21, 98% of revenues were generated in the United States and Canada.

Next events

Trading update

Early November 2022

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

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

4imprint’s first half results show the benefit of record levels of customer demand, with revenue up 58% year-on-year and operating profit rising from $3.6m in H121 to $44.0m in H122. July’s trading update had indicated FY22 revenue breaking through management’s long-held $1bn target, with a material uplift in operating profit to over $75m. With H122 revenue per marketing dollar at $8.19, up from $5.46 in H121, we have substantially raised our profit forecasts for FY22 and FY23 and now publish our first thoughts on FY24. The group continues to invest in its product and people as well as its marketing and generates significant amounts of cash, giving it an excellent opportunity to continue to build market share.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/20

560.0

3.8

11.0

0.0

364.4

N/A

12/21

787.3

30.2

80.3

45.0

49.9

1.1

12/22e

1,050.2

79.7

215.3

120.0

18.6

3.0

12/23e

1,161.0

90.2

243.4

135.0

16.5

3.4

12/24e

1,277.1

99.7

269.0

150.0

14.9

3.7

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

Margin uplift from strong marketing-driven demand

H122 revenue of $515.5m was 58% ahead of the prior year and was generated from 886k total orders processed (H121: 616k). This implies an average order value of $581 in the period, up from $531 in H121 and $521 in H119, the most recent ‘normal’ trading year. This is partly a reflection of mix but also indicates that customers are tending to promote their brands with higher-quality promotional merchandise. The striking uplift, though, is in revenue per marketing dollar, where the positive impact of the targeted spend on TV to drive awareness of the 4imprint brand is now clear. Over FY12–21, revenue per marketing dollar stayed in a narrow range of $5.00–6.43, so the increase to $8.19 represents a real step change and is clearly reflected in the achievable operating margin and hence our higher forecasts.

Buoyancy tempered by costs and supply

Our updated implied H222 figures show continuing good revenue growth, but at a less frenetic pace of 16%. We anticipate slight pressure on gross margin from pricing and supply issues with management prioritising good long-term client relationships over aggressive price recovery. However, we do expect that the better marketing productivity will continue, which is the key element to the uplift in our expected FY22 operating profit to $80m from $54m and to $91m from $65m in FY23e.

Valuation: Revenue and margin upgrades lift DCF

The share price responded very positively to July’s trading update when the share price was £23.30. At the time of our May update, our DCF suggested a value of £39.27 per share. The upgrade to forecasts, in particular the step change uplift to operating margin, takes this to £52.82 per share with weaker sterling boosting the implied value to £54.58 per share, significantly ahead of the current share price.

Focus on doing the simple things right pays off

4imprint is a comparatively straightforward business and to some extent stands as a bellwether to the health of corporate America. At the height of the pandemic, volumes and revenues dropped away sharply, but management was able to maintain investment in the workforce and in ‘maintenance’ levels of marketing in the knowledge of the substantial reserves of cash that had been accumulated during more favourable conditions.

This commitment across stakeholder groups – employees, customers, suppliers and shareholders – is now serving the group well as the economy continues to recover. With labour markets tight, having a strong local reputation is a valuable asset to attract and retain staff. Similarly, working with suppliers in a partnership-type relationship can allow for more flex in pricing negotiations and prioritisation when supply chain issues arise.

Given the scale and diversity of the overall promotional products market in the United States (see Outlook note), it is likely that 4imprint is gaining market share from a wide array of competitors, some of which may be struggling to fund working capital as demand rebounds.

Updated forecasts

The July update indicated that operating profit would be substantially ahead of forecasts at the time and not less than $75m. With an ‘encouraging’ start to H222, we have revised our current year operating profit forecast to $80m, with uplifts to FY23 following through from the higher base levels. We are making an early stab at numbers for FY24, with top-line growth reverting to a more ‘normalised’ rate of 10% and operating margins maintained at the higher level. Further expansion of operating margin is less likely, with investment in marketing and in people being scaled to deliver the top line growth.

Exhibit 1: Summary forecast changes

EPS (c)

PBT ($m)

EBITDA ($m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2022e

144.8

215.3

+49

53.5

79.7

+49

59.3

85.5

+44

2023e

172.8

243.4

+41

64.8

90.2

+39

70.5

96.1

+36

2024e

N/A

269.0

N/A

N/A

99.7

N/A

N/A

105.6

N/A

Source: Edison Investment Research

Cash resource builds

Cash at the end of the half year was $67.1m and the group has no financial debt. Very unusually, there was a small acquisition made in the reporting period. In April, 4imprint bought a small, local apparel screen printer that had previously been a supplier to the group for $1.7m. This will bring in-house an area of expertise and capacity to sit alongside the existing apparel embroidery operation and is unlikely to be the precursor for a more extensive foray into M&A.

The group is also investing $2m in a solar array at its distribution centre, expected to be fully operational by the end of this month and which should, in time, produce around half of the power requirements of the distribution centre.

Given the improvement in earnings, we also expect to see a strong uplift in dividend payments, with cover remaining at around 1.8x. Our modelling implies a year-end cash balance of just under $80m, building to $108m for end FY23e and $139m by end FY24e.

Exhibit 2: Financial summary

$000s

2020

2021

2022e

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

560,040

787,322

1,050,202

1,160,968

1,277,065

Cost of Sales

(402,100)

(561,306)

(749,884)

(830,092)

(913,101)

Gross Profit

157,940

226,016

300,318

330,876

363,963

EBITDA

 

 

8,905

35,660

85,516

96,100

105,600

Operating profit (before amort. and excepts.)

 

 

3,972

30,646

80,016

90,500

100,000

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

3,972

30,646

80,016

90,500

100,000

Net Interest

(129)

(417)

(300)

(300)

(300)

Profit Before Tax (norm)

 

 

3,843

30,229

79,716

90,200

99,700

Profit Before Tax (IFRS)

 

 

3,843

30,229

79,716

90,200

99,700

Tax

(753)

(7,643)

(19,132)

(21,648)

(23,928)

Profit After Tax (norm)

3,090

22,586

60,584

68,552

75,772

Profit After Tax (IFRS)

3,090

22,586

60,584

68,552

75,772

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

3,090

22,586

60,584

68,552

75,772

Net income (IFRS)

 

 

3,090

22,586

60,584

68,552

75,772

Average Number of Shares Outstanding (m)

28.0

28.1

28.1

28.1

28.1

EPS - normalised fully diluted (c)

 

 

11.0

80.3

215.3

243.4

269.0

EPS - (IFRS) (c)

 

 

11.0

80.5

215.8

244.0

269.7

Dividend per share (c)

0.0

45.0

120.0

135.0

150.0

Gross Margin (%)

28.2

28.7

28.6

28.5

28.5

EBITDA Margin (%)

1.6

4.5

8.1

8.3

8.3

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

0.7

3.9

7.6

7.8

7.8

BALANCE SHEET

Fixed Assets

 

 

43,269

40,011

47,296

49,856

52,416

Intangible Assets

0

0

1,010

1,010

1,010

Other intangible assets

1,100

1,045

1,045

1,045

1,045

Tangible Assets

24,832

24,667

28,167

28,067

27,967

Right of use assets

13,065

11,725

10,500

9,160

7,820

Deferred tax assets

4,272

600

600

600

600

Retirement benefit asset

 

 

0

1974

5974

9974

13974

Current Assets

 

 

89,812

127,771

185,735

226,458

266,214

Stocks

11,271

20,559

25,367

28,323

28,818

Debtors

38,775

63,589

78,459

87,602

96,362

Cash

39,766

41,589

79,875

108,500

139,000

Other

0

2,034

2,034

2,034

2,034

Current Liabilities

 

 

(51,118)

(73,027)

(99,423)

(109,788)

(120,652)

Creditors

(50,001)

(71,877)

(98,273)

(108,638)

(119,502)

Short term borrowings

0

0

0

0

0

Lease liabilities

(1,117)

(1,150)

(1,150)

(1,150)

(1,150)

Long Term Liabilities

 

 

(16,592)

(11,789)

(10,911)

(9,828)

(8,628)

Long term borrowings

0

0

0

0

0

Lease liabilities

(12,089)

(10,939)

(10,061)

(8,861)

(7,661)

Other long term liabilities

(4,503)

(850)

(850)

(967)

(967)

Net Assets

 

 

65,371

82,966

122,697

156,698

189,350

CASH FLOW

Operating Cash Flow

 

 

16,462

22,846

90,500

94,750

102,000

Net Interest

(13)

(409)

(300)

(300)

(300)

Tax

(507)

(6,414)

(15,532)

(19,148)

(20,328)

Capex

(3,724)

(3,465)

(9,000)

(5,500)

(5,500)

Acquisitions/disposals

0

0

(1,700)

0

0

Pension contributions

(13,278)

(4,589)

(4,000)

(4,000)

(4,000)

Financing

941

(843)

(900)

(900)

(900)

Dividends

0

(4,134)

(19,586)

(35,086)

(39,298)

Other/ Capital portion of lease repayments

(1,418)

(1,117)

(1,200)

(1,200)

(1,200)

Net Cash Flow

(1,537)

1,875

38,282

28,616

30,474

Opening net debt/(cash)

 

 

(41,136)

(39,766)

(41,589)

(79,875)

(108,500)

Net impact of disposals etc

0

0

0

0

0

Other

167

(53)

3

8

0

Closing net debt/(cash)

 

 

(39,766)

(41,589)

(79,875)

(108,500)

(138,975)

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 £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 2022 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.

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

1185 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

1185 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 £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 2022 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.

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

1185 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

1185 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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