Demand remains robust

4imprint Group 4 November 2019 Update
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4imprint Group

Demand remains robust

Trading update

Media

4 November 2019

Price

2,960p

Market cap

£831m

$1.24/£

Net cash ($m) at 30 June 2019

41.4

Shares in issue

28.1m

Free float

97.5%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.6)

5.0

45.1

Rel (local)

(2.3)

7.8

40.9

52-week high/low

3,130p

1,800p

Business description

4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. In FY18, 97% of revenues were generated in the US and Canada.

Next events

FY19 trading update

Mid January 2020

FY19 results

Early March 2020

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5700

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

Having delivered 16% top-line growth in H119, 4imprint’s trading update indicates similar progress is likely for the full year. We previously assumed some slight tailing off in H2, so have now edged up our FY19 revenue estimate by $10m, lifting EBITDA by $0.6m. Management’s revenue target of $1bn by FY22e looks likely to be achieved well ahead of schedule. The extension to the Oshkosh distribution centre was completed on time and within the $5m budget, facilitating that forecast revenue growth. We regard the current share price as well underpinned, with further potential upside.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

627.5

42.5

107.7

58.1

34.1

1.6

12/18

738.4

46.1

133.5

70.0

27.5

1.9

12/19e

855.0

54.6

152.4

82.5

24.1

2.2

12/20e

950.0

60.7

169.3

92.5

21.7

2.5

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

Brand and core marketing investment

The brief trading update attributes the group’s continuing strong revenue growth to both new and existing customers. This is testament to the success of the management of the marketing mix. The addition of traditional TV and radio campaigns to increase the resonance of the group’s brand among the wider target audience has proved to have been a good call and will continue to be an element of ongoing marketing spending. The US/China tariffs are a manageable irritant, with the promotional products distributors all in the same boat as alternate suppliers are not readily available at scale. The completion of the Oshkosh extension creates more capacity for processing apparel orders while there is no further news at this juncture on the additional office space needed as the group builds scale.

Earnings forecasts again edged ahead

We have raised our H2 revenue growth expectations from 13% to the 16% indicated in management’s update. This lifts EBITDA, operating profit and PBT by $0.6m and EPS by 1% to 152.4c. We expect top-line growth to moderate in FY20 to just over 11%, which is still well ahead of the c 3–4% market growth and translates into 11% EPS growth. Our model now indicates end-FY19 net cash of $39.5m, which allows plenty of scope to fund new offices and to continue to invest in marketing both at the brand level and in the core business.

Valuation: Premium for quality, growing earnings

4imprint’s shares trade at a premium to quoted UK marketing services peers, but it has little in common with them operationally. The group’s long, positive trading record, high cash conversion (a five-year average of 103%) and progressive dividend also single it out. A DCF on our updated numbers suggests a value of £26.72 (on conservative assumptions of a 9% WACC and 3% terminal growth), from £26.01 at the time of our last note. An 8% WACC assumption would generate a value of £31.64.

Exhibit 1: Financial summary

$000s

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

627,518

738,418

855,000

950,000

Cost of Sales

(422,299)

(500,531)

(576,591)

(640,667)

Gross Profit

205,219

237,887

278,409

309,333

EBITDA

 

 

45,092

48,507

58,138

64,038

Operating Profit (before amort. and except).

42,580

45,862

53,944

59,844

Intangible Amortisation

(464)

0

0

0

Operating Profit (after amort. and before except.)

42,116

45,862

53,944

59,844

Operating Profit

41,284

44,322

52,930

58,844

Net Interest

(122)

227

692

870

Net pension finance charge

(503)

(403)

(406)

(406)

Profit Before Tax (norm)

 

 

42,458

46,089

54,636

60,714

Profit Before Tax (IFRS)

 

 

40,659

44,146

53,216

59,308

Tax

(11,734)

(8,952)

(11,707)

(13,048)

Profit After Tax (norm)

30,724

37,453

43,328

48,066

Profit After Tax (IFRS)

28,925

35,194

41,508

46,260

Discontinued businesses

0

0

0

0

Net income (norm)

 

 

30,291

37,511

42,928

47,669

Net income (IFRS)

 

 

28,925

35,194

41,508

46,260

Average Number of Shares Outstanding (m)

28.0

28.0

28.1

28.1

EPS - normalised (c)

 

 

107.7

133.5

152.4

169.3

EPS - (IFRS) (c)

 

 

103.1

125.6

147.8

164.7

Dividend per share (c)

58.1

70.0

82.5

92.5

Gross Margin (%)

32.7

32.2

32.6

32.6

EBITDA Margin (%)

7.2

6.6

6.8

6.7

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

6.8

6.2

6.3

6.3

BALANCE SHEET

Fixed Assets

 

 

25,879

25,732

31,346

30,752

Intangible Assets

0

0

0

0

Other intangible assets

1,138

1,084

1,084

1,084

Tangible Assets

18,829

19,012

23,518

22,924

Right of use assets

0

0

1,108

1,108

Deferred tax assets

5,912

5,636

5,636

5,636

Current Assets

 

 

82,831

84,234

106,723

132,845

Stocks

7,940

9,878

11,666

13,222

Debtors

44,124

46,872

54,272

60,302

Cash

30,767

27,484

40,785

59,321

Other

0

0

0

0

Current Liabilities

 

 

(49,024)

(50,752)

(60,050)

(66,579)

Creditors

(48,878)

(50,752)

(58,765)

(65,294)

Short term / lease borrowings

0

0

(1,285)

(1,285)

Long Term Liabilities

 

 

(18,604)

(15,947)

(13,226)

(10,226)

Long term borrowings

0

0

0

0

Other long term liabilities (including pension)

(18,604)

(15,947)

(13,226)

(10,226)

Net Assets

 

 

41,082

43,267

64,794

86,792

CASH FLOW

Operating Cash Flow

 

 

44,576

45,583

59,800

64,500

Net Interest

(122)

227

692

870

Tax

(12,751)

(7,844)

(12,108)

(13,445)

Capex

(2,359)

(2,855)

(8,700)

(3,600)

Acquisitions/disposals

0

0

0

0

Pension contributions

(3,675)

(3,932)

(3,500)

(3,500)

Financing

(1,359)

(465)

(2,500)

(500)

Dividends

(15,845)

(32,984)

(20,814)

(24,093)

Other

0

0

(821)

(821)

Net Cash Flow

8,465

(2,270)

12,049

19,411

Opening net debt/(cash)

 

 

(21,683)

(30,767)

(27,484)

(39,500)

Net impact of disposals etc

0

0

0

0

Other

619

(1,013)

(33)

(11)

Closing net debt/(cash)

 

 

(30,767)

(27,484)

(39,500)

(58,900)

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

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

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

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

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

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

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

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

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

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

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

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

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

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

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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