US growth promoters

4imprint Group 5 March 2019 Update
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4imprint Group

US growth promoters

Full-year results

Media

5 March 2019

Price

2035p

Market cap

£572m

$1.32/£

Net cash ($m) as at 31 December 2018

27.5

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

3.8

1.5

9.7

Rel (local)

2.1

(0.8)

9.0

52-week high/low

2,260p

1,575p

Business description

4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. 97% of 2018 revenues were generated in the US and Canada.

Next events

AGM

Early May 2019

Half-year report

Late July/early August

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

4imprint’s results show continued strong progress, with FY18 revenues up 18% on the prior year, coming in just ahead of our forecasts. The growth was supported by additional brand awareness spend, with revenue per marketing dollar holding up very well at $5.63 (FY17: $5.67). The group continues to be well placed to carry on growing its market share in the substantial and fragmented promotional goods sector, on margins that should edge ahead. Our FY19 revenue forecast is lifted 2%, with a slightly lower increase in earnings reflecting further brand support marketing. The group has strong cash conversion (100%) and a cash rich balance sheet. We consider that there is further potential upside to the share price.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

627.5

42.5

107.7

58.1

24.9

2.2

12/18

738.4

46.4

132.3

70.0

20.3

2.6

12/19e

812.3

52.6

147.0

80.0

18.3

3.0

12/20e

877.3

57.4

159.5

87.5

16.8

3.3

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

Driving growth through data-driven marketing

We published a detailed report in January and these results confirm our perception that the strategy of recruiting and retaining customers through a range of data-driven marketing techniques is capable of delivering growth well ahead of the market (which is estimated by management to be growing at 5.0%). There were 1.389m customer orders processed in the year, up 17%. The group is comfortably on track to meet the self-imposed objective of hitting $1bn of revenue by FY22. The brand awareness campaign has increased both direct and search traffic to the website and will form an ongoing part of the marketing mix. We have incorporated this into our modelled operating margin. Our FY19 and FY20 PBT and EPS forecasts are lifted 1% at this early stage of the year, which has reportedly started well.

Plenty of cash to invest for the next stage

The pace of growth – in particular the successful build of the apparel offering – has meant that additional capacity at the main Oshkosh distribution centre, put in three years ago to cater for the next five years, now needs to be extended again. $5m of capex has been allocated for this project in the current year (H1). Despite this, and a progressive dividend (up 20% for FY18), our model shows net cash (there is no debt) building to $38.1m by the year-end and to $55.1m by the end of FY20e.

Valuation: Continued positive trading momentum

The group trades at a premium to quoted UK marketing services groups, but there is little in common with this group operationally. 4imprint’s long, positive trading record, cash conversion and progressive dividend also single it out. A DCF on our numbers indicates further potential upside, suggesting a value of £23.26 (on a WACC of 9% and terminal growth of 3.0%), from £22.87 at the time of our last note.

Exhibit 1: Financial summary

$000s

2016

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

558,223

627,518

738,418

812,250

877,250

Cost of Sales

(374,137)

(422,299)

(502,230)

(550,503)

(591,582)

Gross Profit

184,087

205,219

236,188

261,747

285,667

EBITDA

 

 

40,766

45,092

48,823

55,723

60,504

Operating Profit (before amort. and except).

38,377

42,580

46,178

52,378

57,159

Intangible Amortisation

(499)

(464)

(445)

(445)

(445)

Operating Profit (after amort. and before except.)

37,878

42,116

45,733

51,933

56,714

Operating Profit

34,696

41,284

44,341

51,033

55,814

Net Interest

(24)

(122)

227

247

261

Net pension finance charge

(521)

(503)

(403)

(403)

(403)

Profit Before Tax (norm)

 

 

38,353

42,458

46,405

52,625

57,420

Profit Before Tax (IFRS)

 

 

34,151

40,659

44,165

50,877

55,672

Tax

(9,672)

(11,734)

(8,956)

(10,913)

(12,248)

Profit After Tax (norm)

28,681

30,724

37,449

41,712

45,172

Profit After Tax (IFRS)

24,479

28,925

35,209

39,964

43,424

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

27,773

30,291

37,175

41,337

44,787

Net income (IFRS)

 

 

24,479

28,925

35,209

39,964

43,424

Average Number of Shares Outstanding (m)

28.1

28.0

28.0

28.0

28.0

EPS - normalised (c)

 

 

98.7

107.7

132.3

147.0

159.5

EPS - (IFRS) (c)

 

 

87.3

103.1

125.7

142.5

155.0

Dividend per share (c)

52.5

58.1

70.0

80.0

87.5

Gross Margin (%)

33.0

32.7

32.0

32.2

32.6

EBITDA Margin (%)

7.3

7.2

6.6

6.9

6.9

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

6.9

6.8

6.3

6.4

6.5

BALANCE SHEET

Fixed Assets

 

 

25,050

25,879

25,732

31,532

32,232

Intangible Assets

0

0

0

0

0

Other intangible assets

1,082

1,138

1,084

1,084

1,084

Tangible Assets

18,938

18,829

19,012

24,812

25,512

Investments

0

0

0

0

0

Deferred tax assets

5,030

5,912

5,636

5,636

5,636

Current Assets

 

 

65,662

82,831

84,234

100,750

122,985

Stocks

4,179

7,940

9,878

11,083

12,209

Debtors

39,800

44,124

46,872

51,559

55,684

Cash

21,683

30,767

27,484

38,108

55,091

Other

0

0

0

0

0

Current Liabilities

 

 

(40,363)

(49,024)

(50,752)

(55,827)

(60,294)

Creditors

(40,363)

(48,878)

(50,752)

(55,827)

(60,294)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(21,024)

(18,604)

(15,947)

(13,037)

(10,037)

Long term borrowings

0

0

0

0

0

Other long term liabilities (including pension)

(21,024)

(18,604)

(15,947)

(13,037)

(10,037)

Net Assets

 

 

29,325

41,082

43,267

63,418

84,886

CASH FLOW

Operating Cash Flow

 

 

46,804

44,576

45,583

56,418

60,080

Net Interest

(23)

(122)

227

247

261

Tax

(9,423)

(12,751)

(7,844)

(11,288)

(12,632)

Capex

(3,267)

(2,359)

(2,855)

(8,700)

(3,600)

Acquisitions/disposals

0

0

0

0

0

Pension contributions

(17,354)

(3,675)

(3,932)

(3,500)

(3,500)

Financing

(270)

(1,359)

(465)

(2,000)

(500)

Dividends

(12,141)

(15,845)

(32,984)

(20,553)

(23,126)

Other

0

0

0

0

0

Net Cash Flow

4,326

8,465

(2,270)

10,624

16,983

Opening net debt/(cash)

 

 

(18,381)

(21,683)

(30,767)

(27,484)

(38,108)

Net impact of disposals etc

0

0

0

0

0

Other

(1,024)

619

(1,013)

(0)

0

Closing net debt/(cash)

 

 

(21,683)

(30,767)

(27,484)

(38,108)

(55,091)

Source: 4imprint Group accounts, Edison Investment Research


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Germany

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United Kingdom

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United States of America

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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

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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