Steady rebuild as economy reopens

4imprint Group 16 March 2021 Update
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4imprint Group

Steady rebuild as economy reopens

Final results

Media

16 March 2021

Price

2710p

Market cap

£761m

$1.37/£

Net cash ($m) at 31 December 2020, excluding $13.2m in lease liabilities

39.8

Shares in issue

28.1m

Free float

98.2%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.3

5.1

15.5

Rel (local)

6.2

0.3

(10.1)

52-week high/low

2,850p

1,320p

Business description

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

Next events

AGM

May 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

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

4imprint’s FY20 revenues were, as indicated at January’s update, slightly ahead of our previous forecast after more positive Q4 trading. Indications are that revenues are continuing to regain ground as the US economy builds back. In January and February, quieter trading months, order counts were at 65% of FY19 levels, with March (to date) showing further progress, allowing us to move FY21 estimates ahead. The group’s considerable cash resource has enabled it to trade through the shutdowns while keeping its infrastructure and people in place. The speed of its financial recovery will inevitably reflect the timing and scale of the rebound in US corporate health.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

860.8

55.6

157.2

84.0

23.6

2.3

12/20

560.0

5.0

13.8

0.0

269.0

N/A

12/21e

645.0

17.9

49.5

25.0

75.0

0.7

12/22e

725.0

25.8

71.7

35.0

51.8

0.9

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

Balance sheet resilience a key strength

A year-on-year decrease in revenues of 35% translated to a 92% decrease in underlying PBT. Considering that in the early weeks of the lockdowns, order counts fell to 20% of prior year, this is a much better outturn than had been feared earlier. The strong balance sheet enabled the group to weather the conditions without needing to lay off staff or change its purpose (some competitors switched their activities to the distribution of PPE). It has also worked hard to maintain strong relationships with both customers and suppliers, which should stand it in good stead as conditions improve. Net cash at the year-end was $39.8m, despite the group paying a one-off pension contribution of $9.1m, as previously agreed with the trustees, in addition to the regular plan payments.

Marketing investment is the key variable

We expect that there will some recovery in gross margin in FY21, as labour costs are increasingly absorbed as revenues rebuild. The key variable is the marketing cost, which in more normal operating circumstances is flexed to maintain a broadly stable operating margin. The focus through the pandemic to date has been on supporting brand awareness, with TV campaigns a core element of the mix, and with reduced spend on catalogues. We believe this stance should help drive market share gains in the upturn.

Valuation: Premium rating maintained

With continuing uncertainty over the speed of the continuing recovery in the US economy, our earnings forecasts remain more tentative than usual. However, 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 c 45.8x, compared to marketing services stocks on 17.1x, but we anticipate further recovery in future years that will narrow this valuation gap.

FY20: An atypical year

As indicated at the year-end trading update, revenues were firmer than expected in Q4, delivering a full year results ahead of our previous expectations. This is likely to have been due to corporates gifting their own employees to mark their efforts, as well as continuing to send items to customers.

Exhibit 1: FY20 revenue to profit waterfall

Source: Company accounts, Edison Investment Research

Gross profit margin for the year of 28.2% was lower than usual (the average level across FY11–19 was 32.9%). This largest factor contributing to this was irrecoverable labour costs in areas such as embroidery, the warehouse and creative, with staff numbers maintained through the lockdowns. It also reflects higher customer volume discounts on higher average order values (itself a product of a greater proportion of apparel in the mix), a shift in mix and some impact from tariffs and lower supplier rebates stemming from reduced volumes.

We have built some amelioration into our FY21 numbers as volumes continue their rebound, with gross margin projected to lift to 29.2% and further to 30.9% in FY22.

As usual, marketing costs are the most substantial element of the operational costs, but our view is that they should be characterised as an investment in driving future revenues. Marketing spend was 40% lower than prior year, with the mix managed to optimise its return. There is little point in printing catalogues to sit on empty desks or sending sample boxes to deserted offices. However, there is a strong argument for running brand awareness campaigns that will help build market share when spending on promotional products resumes its growth. Revenue per marketing dollar (a central KPI for the business) was $6.03 in FY20, up from $5.58 in FY19.

Revisions to forecasts

Management has indicated that the year has started with order levels running at around 65% of those achieved in FY19 (FY20 was so unusual it does not make for a useful comparator). March to date is running at 70% of FY19 equivalent. Our full year revenue forecasts are predicated on the percentage shortfall against FY19 figures diminishing as the year progresses, although not totally recouping those levels. The prospects for resumption of in-person trade fairs, conferences and conventions are still uncertain.

For FY22, we have built in modest growth of 7.5%, although visibility at that distance is negligible.

Exhibit 2: Summary revisions to forecasts

Revenue ($m)

EBITDA ($m)

EPS (c)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2020*

535

560

+5

3.9

8.4

+115

0.3

13.8

+4,500

2021e

600

645

+8

18.8

21.6

+15

40.6

49.5

+22

2022e

-

725

N/A

-

29.6

N/A

-

71.7

N/A

Source: Company accounts, Edison Investment Research. Note: *For 2020, ‘new’ refers to actual figure.

Balance sheet remains strong

4imprint closed the year with cash of $39.8m, compared with $41.1m at end FY19. Leasehold liabilities of $13.2m are the only ‘debt’. This strong funding position was despite the obvious trading headwinds and after the payment in H120 of a special pension contribution of $9.14m agreed with the trustees before the onset of the pandemic. Capital spend in the year was $3.8m – a reduced level to conserve cash.

Given the continuing uncertainties, management wants to retain the maximum amount of flexibility regarding cash resource. It is therefore not recommending the payment of a dividend for FY20, having previously cancelled the FY19 final payment. Although there is no commitment to do so, our modelling assumes that payments are resumed in FY21 and we have suggested a level that would be approximately twice covered by earnings.

Exhibit 3: Financial summary

$000s

2018

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

738,418

860,844

560,040

645,000

725,000

Cost of Sales

(500,531)

(585,543)

(402,100)

(456,840)

(501,157)

Gross Profit

237,887

275,301

157,940

188,160

223,843

EBITDA

 

 

48,507

59,144

8,417

21,645

29,624

Operating Profit (before amort. and except).

 

 

45,862

54,860

5,017

17,845

25,824

Intangible Amortisation

0

0

0

0

0

Operating Profit (after amort. and before except.)

 

 

45,862

54,860

5,017

17,845

25,824

Exceptionals

(721)

0

0

0

0

Impairment

0

0

0

0

0

DB Pension administration charges

(316)

(312)

(420)

(420)

(420)

Pensions and share options

(819)

(928)

(625)

(800)

(800)

Operating Profit

44,322

53,620

3,972

16,625

24,604

Net Interest

227

751

(25)

25

25

Net pension finance charge

(403)

(378)

(104)

(104)

(104)

Profit Before Tax (norm)

 

 

46,089

55,611

4,992

17,870

25,849

Profit Before Tax (IFRS)

 

 

44,146

53,993

3,843

16,546

24,525

Tax

(8,952)

(11,276)

(753)

(3,640)

(5,428)

Profit After Tax (norm)

36,734

44,335

4,239

14,230

20,421

Profit After Tax (IFRS)

35,194

42,717

3,090

12,906

19,097

Discontinued businesses

(100)

0

0

0

0

Net income (norm)

 

 

36,360

44,203

3,894

13,938

20,162

Net income (IFRS)

 

 

35,094

42,717

3,090

12,906

19,097

Average Number of Shares Outstanding (m)

28.0

28.0

28.0

28.0

28.0

EPS - normalised (c)

 

 

129.4

157.2

13.8

49.5

71.7

EPS - (IFRS) (c)

 

 

125.6

152.4

11.0

46.0

68.1

Dividend per share (c)

70.0

84.0

0.0

25.0

35.0

Gross Margin (%)

32.2

32.0

28.2

29.2

30.9

EBITDA Margin (%)

6.6

6.9

1.5

3.4

4.1

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

6.2

6.4

0.9

2.8

3.6

BALANCE SHEET

Fixed Assets

 

 

25,732

31,844

43,269

43,169

43,069

Intangible Assets

0

0

0

0

0

Other intangible assets

1,084

1,152

1,100

1,100

1,100

Tangible Assets

19,012

24,369

24,832

24,732

24,632

Right of use assets

0

1,985

13,065

13,065

13,065

Deferred tax assets

5,636

4,338

4,272

4,272

4,272

Current Assets

 

 

84,234

105,631

89,812

102,638

115,387

Stocks

9,878

11,456

11,271

12,981

14,591

Debtors

46,872

53,039

38,775

44,657

50,196

Cash

27,484

41,136

39,766

45,000

50,600

Other

0

0

0

0

0

Current Liabilities

 

 

(50,752)

(60,839)

(51,118)

(58,703)

(65,846)

Creditors

(50,752)

(59,209)

(50,001)

(57,586)

(64,729)

Short term borrowings

0

0

0

0

0

Lease liabilities

0

(1,630)

(1,117)

(1,117)

(1,117)

Long Term Liabilities

 

 

(15,947)

(13,688)

(16,592)

(12,467)

(12,467)

Long term borrowings

0

0

0

0

0

Lease liabilities

0

(415)

(12,089)

(12,089)

(12,089)

Other long term liabilities (including pension)

(15,947)

(13,273)

(4,503)

(378)

(378)

Net Assets

 

 

43,267

62,948

65,371

74,637

80,143

CASH FLOW

Operating Cash Flow

 

 

45,583

56,248

7,322

22,900

30,700

Net Interest

227

706

(13)

25

25

Tax

(7,844)

(10,318)

(507)

(3,931)

(5,687)

Capex

(2,855)

(8,178)

(3,724)

(3,700)

(3,700)

Acquisitions/disposals

0

0

0

0

0

Pension contributions

(3,932)

(3,593)

(4,138)

(3,900)

(3,900)

Financing

(465)

(2,567)

941

(2,200)

(2,200)

Dividends

(32,984)

(20,659)

0

(2,317)

(7,947)

Other

0

(1,687)

(1,418)

(1,622)

(1,622)

Net Cash Flow

(2,270)

9,952

(1,537)

5,255

5,670

Opening net debt/(cash)

 

 

(30,767)

(27,484)

(41,136)

(39,766)

(45,000)

Net impact of disposals etc

0

3,638

0

0

0

Other

(1,013)

62

167

(21)

(70)

Closing net debt/(cash)

 

 

(27,484)

(41,136)

(39,766)

(45,000)

(50,600)

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).

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 £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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