International Greetings — Update 17 January 2016

International Greetings — Update 17 January 2016

International Greetings

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

International Greetings

Non-stationary stationery

Trading update

Care & household goods

20 January 2016

Price

184.5p

Market cap

£109m

Net debt (£m) at end September 2015

78.0

Shares in issue

59.3m

Free float

51.2%

Code

IGR

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.9

38.2

150.6

Rel (local)

13.1

49.7

173.7

52-week high/low

192.5p

71p

Business description

International Greetings (IGR) is one of the world's leading designers, manufacturers, importers and distributors of gift packaging and greetings, social expression giftware, stationery and creative play products.

Next events

Full year results

21 June 2016

AGM

14 September 2016

Interim figures

30 November 2016

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Anne Margaret Crow

+44 (0)20 3077 5700

International Greetings is a research client of Edison Investment Research Limited

International Greetings’ (IGR) Q3 trading update shows that the key Christmas sales period has gone to plan and that the group is on track to meet market forecasts for the year to end March. The regaining of positive momentum in the US is particularly encouraging, with the new management expanding horizons with exports into Canada, Mexico and Brazil. The share price has performed well over recent months and the valuation is now a fairer reflection of progress to date and the prospects for continuing growth.

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

224.5

8.1

9.1

0.0

20.3

N/A

03/15

229.0

9.6

11.8

1.0

15.6

0.5

03/16e

233.5

10.1

12.1

2.0

15.2

1.1

03/17e

237.0

11.1

12.8

3.0

14.4

1.6

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. EPS are shown as fully diluted.

Q3 looking positive across the board

No figures were given in the trading update (which comes hard on the heels of December’s interims), but it confirms that all regions are trading profitably. The benefits of the investment programme in giftwrap manufacture in Holland and Wales and in upgrading capacity in China are all paying back at least as well as planned. The current investment in conversion in the US, albeit at a lesser financial scale, underpins momentum for increasing sales in domestic and export markets. The Australia joint venture has been rebuilding its business and has seen particular success in expanding its product range into party ware, a move that will have been closely watched by other group territories. A strong range of licensed properties (including Star Wars, Minions and Frozen) has contributed good sales, with some licences extended into new territories and across new channels.

Converting profit into cash

A few years back, it may have been the easy option for management to manage a decline, assuming that markets were mature, margins under pressure and that the balance sheet was heavily burdened with debt. Instead, the team has energised the business, invested in production and distribution channels, building sales and gaining market share. The focus on converting the resulting profits into cash has reduced net debt from £68.5m at end FY09 to our forecast of £26.0m at end FY16 despite cumulative capital spend of £23.4m over that period.

Valuation: Better reflecting prospects

The share price has risen from 77p in April 2015 as the market has recognised the success of management’s strategy to date. The record in converting profits to cash supports the case that expansion can continue and a progressive dividend stream paid to shareholders. The valuation is now at a premium on calendar 2015 EV/EBITDA with a consumer supplies-based peer group, reflecting IGR’s improved growth prospects and lengthening record of delivery against expectations.

Exhibit 1: Financial summary

2014

2015

2016e

2017e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

224,462

229,025

233,500

237,000

Cost of Sales

(185,244)

(189,048)

(192,347)

(195,240)

Gross Profit

39,218

39,977

41,152

41,759

EBITDA

 

 

16,352

16,850

17,180

18,163

Operating Profit (before amort and except)

 

11,320

12,315

12,645

13,628

Intangible Amortisation

(576)

(428)

(410)

(400)

Exceptionals

(2,298)

(1,235)

0

0

Share-based payments

(82)

(623)

(600)

(750)

Operating Profit

8,364

10,029

11,635

12,478

Net Interest

(3,177)

(2,726)

(2,500)

(2,500)

Profit Before Tax (norm)

 

 

8,143

9,589

10,145

11,128

Profit Before Tax (FRS 3)

 

 

5,269

7,926

9,735

10,728

Tax

(1,582)

(1,346)

(2,135)

(2,644)

Profit After Tax (norm)

6,561

8,243

8,010

8,484

Profit After Tax (FRS 3)

3,687

6,580

7,600

8,084

Average Number of Shares Outstanding (m)

57.5

58.1

58.8

58.8

EPS - normalised (p)

 

 

9.4

12.1

12.4

13.1

EPS - normalised fully diluted (p)

 

 

9.1

11.8

12.1

12.8

EPS - (IFRS) (p)

 

 

5.2

10.7

12.1

12.9

Dividend per share (p)

0.0

1.0

2.0

3.0

Gross Margin (%)

17.5

17.5

17.6

17.6

EBITDA Margin (%)

7.3

7.4

7.4

7.7

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

5.0

5.4

5.4

5.8

BALANCE SHEET

Fixed Assets

 

 

67,664

65,688

70,238

69,485

Intangible Assets

31,950

31,692

34,350

34,966

Tangible Assets

35,714

33,996

35,888

34,519

Investments

0

0

0

0

Current Assets

 

 

76,261

71,312

74,333

74,928

Stocks

48,460

46,162

46,593

48,001

Debtors

19,690

22,304

22,740

23,427

Cash

8,111

2,846

5,000

3,500

Other

0

0

0

0

Current Liabilities

 

 

(51,965)

(45,722)

(44,800)

(43,443)

Creditors

(39,139)

(39,982)

(39,800)

(39,443)

Short term borrowings

(12,826)

(5,740)

(5,000)

(4,000)

Long Term Liabilities

 

 

(34,799)

(28,694)

(30,356)

(26,356)

Long term borrowings

(32,232)

(26,479)

(26,000)

(22,000)

Other long term liabilities

(2,567)

(2,215)

(4,356)

(4,356)

Net Assets

 

 

57,161

62,584

69,415

74,613

CASH FLOW

Operating Cash Flow

 

 

13,724

17,851

15,800

16,750

Net Interest

(3,221)

(2,775)

(2,500)

(2,500)

Tax

(60)

(1,263)

(1,940)

(2,639)

Capex

(5,291)

(2,100)

(6,000)

(5,500)

Acquisitions/disposals

140

(1,451)

0

0

Financing/Other

1,225

(1,347)

0

0

Dividends

(1,014)

(829)

(1,340)

(1,930)

Net Cash Flow

5,503

8,086

4,020

4,181

Opening net debt/(cash)

 

 

42,138

36,947

29,373

26,000

HP finance leases initiated

296

0

0

0

Other

(608)

(512)

(647)

(681)

Closing net debt/(cash)

 

 

36,947

29,373

26,000

22,500

Source: Company accounts, Edison Investment Research

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