Robust demand recovery

4imprint Group 11 August 2021 Update
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4imprint Group

Robust demand recovery

Interim results

Media

11 August 2021

Price

2,805p

Market cap

£788m

$1.39/£

Net cash ($m) at end June 2021
(excluding $11.6m end-June lease liabilities)

52.8

Shares in issue

28.1m

Free float

96.5%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.8

22.0

15.6

Rel (local)

8.7

20.5

(5.0)

52-week high/low

3,115p

1,744p

Business description

4imprint Group is a leading direct marketer of promotional products in the United States, Canada, the UK and Ireland. In FY20, 98% of revenues were generated in the United States and Canada.

Next events

Trading update (estimate)

end October 2021

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

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

4imprint’s interim results show a strong pick-up in demand from both existing and new customers. Management’s decisions taken early in the onset of the pandemic to retain its staff base and maintain a market presence through advertising have put the group in a strong position to capitalise on the rebound in the US economy. A return to paying dividends is a clear indication of confidence and we have increased our revenue forecasts for FY21 and FY22 by 11% in both years. The step-up in projections at an earnings level are lower, given the higher US tax charges. 4imprint’s balance sheet remains strong, with end-June net cash of $53m.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

860.8

55.6

157.2

84.0

24.8

2.2

12/20

560.0

5.0

13.8

0.0

N/A

N/A

12/21e

775.0

22.6

62.6

35.0

62.3

0.9

12/22e

850.0

32.0

88.6

45.0

44.0

1.2

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

Stronger orders lead to upgrades

H121 revenues were 23% ahead of the prior year, with order counts picking up from the 82% of 2019 levels reported in May to over 96% of 2019 levels for June, with an overall figure of 79% year-to-date. The improvement has been even greater in July, with order levels running 12% ahead of July 2019. It is particularly encouraging that orders from new customers have been even higher, up 18% on July 2019. While it is tempting to extrapolate through H221, there may be an element of ‘catch-up’ as the US economy reopens, so our revised forecasts reflect some moderation. We raise our full year revenue estimate from $700m to $775m and for FY22e from $765m to $850m, having upgraded in March and again in May as the recovery has become more established. There is a note of caution in the statement on pricing, supply and transportation costs, which may constrain operating margins. However, the key component of the margin outturn is the group’s marketing spend. Our modelling shows the operating margin rebuilding through FY22, but still some way off historical levels of 6.0–7.0%.

Cash reassurance and reinstated dividend

Given the severity of the disruption to the US promotional goods market in 2020, with industry body ASI estimating the market value (excluding PPE) to have reduced by 43%, cash conservation was a sensible policy. With $52.8m in cash at end June (lease liabilities only) and a highly cash-generative business model, the board is now re-introducing dividend payments, with an interim of 15c per share.

Valuation: Premium retained

4imprint benefits from a market-leading position, a low fixed-cost base and limited capital requirements, attractive cash flow characteristics and a cash positive balance sheet, all of which justify its premium rating. 4imprint trades on an FY21 EV/EBITDA of 39.3x, compared to marketing services stocks on 16.0x, but we expect that recovery and growth in future years will narrow this valuation gap.

Rebuilding towards FY19 levels

The interim figures show a major improvement over H120, but that is not really a useful comparison, given the circumstances of that trading period. We show below the pattern over two years, which show the recovery under way. However, the market has obviously not yet fully recovered, and its health varies by region across the United States. Both Canada and the UK, where lockdowns have been stricter, have continued to be difficult in the period.

Exhibit 1: Comparison of H121 results with H120 and H119

$m

H119

H120

% change

H121

% change

Revenue

North America

394.4

260.5

-34%

321.7

23%

UK and Ireland

10.6

5.3

-50%

5.1

-3%

Total

405.1

265.8

-34%

326.8

23%

Underlying operating profit

Direct Marketing operations

21.2

1.9

-91%

5.7

196%

Head office cost

-1.7

-1.8

3%

-1.9

7%

Total

19.4

0.1

-99%

3.8

2800%

Underlying operating profit margin

4.8%

0.0%

1.2%

Source: 4imprint accounts. Note: Underlying is before defined pension benefit charges.

The operating profit margin, which remains well below historic levels, continues to be managed through the flexibility of the spend on marketing. While profitability could have been delivered at higher levels over this difficult trading period by reducing that spend, the management view was that maintaining spend, particularly on the TV-centred, brand-based campaigns, would put the group in a better position once demand started to pick up. It remains central to the strategy for H221 and on, when there should be a good opportunity to build market share. Marketing spend was 18.3% of revenue in H121, from 17.7% in H120 and 19.5% in H119. However, since the introduction of TV and radio to the mix, there is now much more flexibility in how that spend is managed, with a reduction in the spend on print and an emphasis on building brand recognition, putting the brand in front of potential customers rather than competing for Google keywords.

Swings and roundabouts on the way

The statement highlights the challenges of managing the supply chain through the pandemic, with product shortages but also real hurdles to be tackled in logistics. Supply chains can be very long and delivery schedules lengthy and we have taken these potential issues into consideration in our margin assumptions within the model. They are obviously not unique to 4imprint, and the group’s collaborative stance with its suppliers should help ameliorate them to some extent.

New non-execs add resource

4imprint has two new non-executive directors (from 1 September), who bring directly relevant experience. Lindsay Beardsell is executive VP and general counsel at Tate & Lyle (ex Ladbrokes Coral and SuperGroup) and adds to the legal, governance and commercial resource, while Jaz Rabadia will be able to support the group’s sustainability agenda, given her experience as director of energy, sustainability and social impact at WeWork and before that at Starbucks and Sainsbury’s.

Revised forecasts

Our revisited forecasts suggest that revenues in FY22 may be close to achieving the levels seen in FY19, but there are no guarantees that the reopening of the US economy will be linear. Economic stimulus should be beneficial as it flows down to 4imprint’s core customer base. There is also good potential for gains in market share from those distributors that are less financially robust and may also be struggling to reorientate themselves having focused on supplying personal protective equipment (PPE). The operational gearing of the additional revenue on operating profit may be curtailed by additional costs as described, while for EPS the effect is compounded by increases in US corporation tax. Nevertheless, our forecast EPS still nudges ahead.

Exhibit 2: Changes to forecasts

EPS (c)

Revenue ($m)

Operating profit ($m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2020

13.8

13.8

-

560

560

-

5.0

5.0

-

2021e

58.5

62.6

+7

700

775

+11

21.1

23.0

+9

2022e

86.9

88.6

+2

765

850

+11

31.3

32.4

+4

Source: 4imprint accounts, Edison Investment Research

Exhibit 3: Financial summary

$000s

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

860,844

560,040

775,000

850,000

Cost of Sales

(585,543)

(402,100)

(556,298)

(610,300)

Gross Profit

275,301

157,940

218,702

239,700

EBITDA

 

 

59,144

8,417

26,600

36,100

Operating Profit (before amort. and except).

 

 

54,860

5,017

23,000

32,400

Intangible Amortisation

0

0

0

0

Operating Profit (after amort. and before except.)

 

 

54,860

5,017

23,000

32,400

Exceptionals

0

0

0

0

Impairment

0

0

0

0

DB Pension administration charges

(312)

(420)

(420)

(420)

Pensions and share options

(928)

(625)

(800)

(800)

Operating Profit

53,620

3,972

21,780

31,180

Net Interest

751

(25)

(400)

(400)

Net pension finance charge

(378)

(104)

(104)

(104)

Profit Before Tax (norm)

 

 

55,611

4,992

22,600

32,000

Profit Before Tax (IFRS)

 

 

53,993

3,843

21,276

30,676

Tax

(11,276)

(753)

(5,106)

(7,680)

Profit After Tax (norm)

44,335

4,239

17,494

24,320

Profit After Tax (IFRS)

42,717

3,090

16,170

22,996

Discontinued businesses

0

0

0

0

Net income (norm)

 

 

44,203

3,894

17,628

24,960

Net income (IFRS)

 

 

42,717

3,090

16,170

22,996

Average Number of Shares Outstanding (m)

28.0

28.0

28.1

28.1

EPS - normalised (c)

 

 

157.2

13.8

62.6

88.6

EPS - (IFRS) (c)

 

 

152.4

11.0

57.6

81.9

Dividend per share (c)

84.0

0.0

35.0

45.0

Gross Margin (%)

32.0

28.2

28.2

28.2

EBITDA Margin (%)

6.9

1.5

3.4

4.2

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

6.4

0.9

3.0

3.8

BALANCE SHEET

Fixed Assets

 

 

31,844

43,269

41,704

41,504

Intangible Assets

0

0

0

0

Other intangible assets

1,152

1,100

1,100

1,100

Tangible Assets

24,369

24,832

24,632

24,432

Right of use assets

1,985

13,065

11,700

11,700

Deferred tax assets

4,338

4,272

4,272

4,272

Current Assets

 

 

105,631

89,812

115,848

125,617

Stocks

11,456

11,271

15,753

17,278

Debtors

53,039

38,775

54,195

59,439

Cash

41,136

39,766

45,900

48,900

Other

0

0

0

0

Current Liabilities

 

 

(60,839)

(51,118)

(68,252)

(74,749)

Creditors

(59,209)

(50,001)

(67,135)

(73,632)

Short term borrowings

0

0

0

0

Lease liabilities

(1,630)

(1,117)

(1,117)

(1,117)

Long Term Liabilities

 

 

(13,688)

(16,592)

(12,267)

(12,267)

Long term borrowings

0

0

0

0

Lease liabilities

(415)

(12,089)

(12,089)

(12,089)

Other long term liabilities (including pension)

(13,273)

(4,503)

(178)

(178)

Net Assets

 

 

62,948

65,371

77,033

80,105

CASH FLOW

Operating Cash Flow

 

 

56,248

7,322

25,100

30,700

Net Interest

706

(13)

(400)

(400)

Tax

(10,318)

(507)

(4,972)

(7,040)

Capex

(8,178)

(3,724)

(3,400)

(3,500)

Acquisitions/disposals

0

0

0

0

Pension contributions

(3,593)

(4,138)

(4,100)

(4,100)

Financing

(2,567)

941

(800)

(800)

Dividends

(20,659)

0

(4,200)

(10,755)

Other

(1,687)

(1,418)

(1,100)

(1,100)

Net Cash Flow

9,952

(1,537)

6,128

3,005

Opening net debt/(cash)

 

 

(27,484)

(41,136)

(39,766)

(45,900)

Net impact of disposals etc

3,638

0

0

0

Other

62

167

6

(5)

Closing net debt/(cash)

 

 

(41,136)

(39,766)

(45,900)

(48,900)

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 2021 Edison Investment Research Limited (Edison).

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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

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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

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 £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 2021 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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