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Research: TMT
4imprint Group
4imprint Group |
Strong promotion |
AGM statement |
Media |
12 May 2016 |
Share price performance
Business description
Next event
Analysts
4imprint4imprint Group is a research client of Edison Investment Research Limited |
4imprint’s AGM statement confirms its growth continues to outstrip that of the promotional products market by a substantial margin, with underlying order intake and revenues ahead by 15% year to date. The US market is very large and growing, yet remains dominated by small suppliers and distributors, giving ample scope for an efficient player such as 4imprint to build at a good pace for some years. With the legacy pension issues now largely resolved and a strong, cash-positive balance sheet, the premium rating is readily justified.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
415.8 |
27.9 |
71.5 |
18.5 |
27.5 |
1.4 |
12/15 |
497.2 |
33.5 |
87.5 |
26.8 |
22.5 |
2.0 |
12/16e |
560.0 |
37.7 |
94.6 |
29.0 |
20.8 |
2.1 |
12/17e |
616.0 |
41.6 |
104.6 |
32.0 |
18.8 |
2.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Investment supports organic growth
4imprint has concentrated on its major organic growth opportunity in North America. FY15’s $9m infrastructure investment in distribution and customer service at its Wisconsin facility has given the group the headroom to expand capacity for the next five years. Growth is supported by investment in on- and off-line marketing, with the former now accounting for over a third of spend, with all spend driven by data analytics. The target is to increase revenues without compromising the operating margin. The group’s naturally high cash conversion has facilitated its addressing the historic pension deficit, with the buy-in to buy-out project targeted to complete in H116. Despite a £10m one-off deficit reduction contribution, we expect the group to close FY16 with $16.4m of net cash. With the drain on cash and management resource of correcting the pension position now fast receding, there will be greater scope to focus on shareholder return.
Large and fragmented market
Trade association ASI listed 4imprint as the second-largest US distributor in 2014, up from number five in 2013, and current momentum means it may have taken over the number one slot ahead of Staples Promotional Products, which had estimated FY14 revenues of $447m. The total market size was estimated at $22bn for FY15, indicating how fragmented the industry remains. The ASI estimates the proportion of online sales was 16% of the total distributor market, up 3.4% in CY15, with a continuing shift in share towards the larger distributors.
Valuation: Rating reflects strong delivery
While on a P/E basis 4imprint trades ahead of the smaller UK-based marketing services sector (FY16e P/E of 20.2x vs 12.9x), these stocks have little in common in terms of business model or geography. There are no direct quoted peers either in the UK or the US. The premium rating reflects the substantial growth opportunity and management’s record in delivering on its ambitions.
Exhibit 1: Financial summary
$000s |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
332,936 |
415,773 |
497,219 |
560,000 |
616,000 |
Cost of Sales |
(223,915) |
(278,564) |
(334,622) |
(376,886) |
(414,575) |
||
Gross Profit |
109,021 |
137,210 |
162,598 |
183,114 |
201,425 |
||
EBITDA |
|
|
21,490 |
29,460 |
35,478 |
39,716 |
44,185 |
Operating Profit (before amort and except) |
19,494 |
27,759 |
33,519 |
37,616 |
41,587 |
||
Operating Profit |
14,530 |
23,239 |
31,127 |
32,146 |
39,917 |
||
Net Interest |
61 |
100 |
30 |
34 |
38 |
||
Net pension finance charge |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
19,555 |
27,859 |
33,549 |
37,650 |
41,625 |
Profit Before Tax (FRS 3) |
|
|
14,472 |
23,339 |
31,157 |
32,180 |
39,955 |
Tax |
(3,857) |
(6,982) |
(8,462) |
(9,654) |
(11,986) |
||
Profit After Tax (norm) |
15,698 |
20,877 |
25,087 |
27,996 |
29,639 |
||
Profit After Tax (FRS 3) |
10,615 |
16,357 |
22,695 |
22,526 |
27,969 |
||
Discontinued businesses |
0 |
0 |
0 |
0 |
0 |
||
Net income (norm) |
|
|
14,701 |
20,121 |
24,587 |
26,731 |
29,554 |
Net income (IFRS) |
|
|
10,615 |
16,357 |
22,695 |
22,526 |
27,967 |
Average Number of Shares Outstanding (m) |
26.5 |
27.4 |
27.9 |
28.1 |
28.1 |
||
EPS - normalised fully diluted (c) |
|
|
52.8 |
71.5 |
87.5 |
94.6 |
104.6 |
EPS - (IFRS) (c) |
|
|
40.1 |
59.7 |
81.3 |
80.2 |
99.6 |
Dividend per share (p) |
17.0 |
18.5 |
26.8 |
29.0 |
32.0 |
||
Gross Margin (%) |
32.7 |
33.0 |
32.7 |
32.7 |
32.7 |
||
EBITDA Margin (%) |
6.5 |
7.1 |
7.1 |
7.1 |
7.2 |
||
Operating Margin (before GW and except.) (%) |
5.9 |
6.7 |
6.7 |
6.7 |
6.8 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
16,476 |
15,197 |
23,753 |
25,253 |
26,253 |
Intangible Assets |
0 |
0 |
0 |
0 |
0 |
||
Other intangible assets |
1,349 |
1,298 |
1,211 |
1,211 |
1,211 |
||
Tangible Assets |
8,803 |
9,105 |
18,154 |
19,654 |
20,654 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
||
Deferred tax assets |
6,324 |
4,794 |
4,388 |
4,388 |
4,388 |
||
Current Assets |
|
|
73,605 |
59,464 |
66,035 |
69,828 |
88,771 |
Stocks |
3,686 |
4,353 |
4,460 |
5,023 |
5,525 |
||
Debtors |
30,105 |
36,810 |
43,194 |
48,405 |
53,245 |
||
Cash |
25,990 |
18,301 |
18,381 |
16,400 |
30,000 |
||
Other |
13,824 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(29,931) |
(36,278) |
(38,222) |
(41,958) |
(46,154) |
Creditors |
(29,931) |
(36,049) |
(37,254) |
(41,958) |
(46,154) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(27,398) |
(24,015) |
(23,114) |
(13,455) |
(13,455) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(27,398) |
(24,015) |
(23,114) |
(13,455) |
(13,455) |
||
Net Assets |
|
|
32,752 |
14,368 |
28,452 |
39,668 |
55,415 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
22,879 |
27,230 |
30,622 |
38,637 |
43,764 |
Net Interest |
86 |
120 |
30 |
34 |
38 |
||
Tax |
(2,714) |
(6,187) |
(8,730) |
(9,451) |
(11,299) |
||
Capex |
(2,028) |
(2,092) |
(10,912) |
(3,100) |
(3,100) |
||
Acquisitions/disposals |
1,484 |
9,717 |
0 |
0 |
0 |
||
Pension contributions |
(4,966) |
(26,544) |
(825) |
(15,800) |
(3,000) |
||
Financing |
122 |
(1,316) |
0 |
0 |
0 |
||
Dividends |
(6,558) |
(7,924) |
(9,604) |
(11,701) |
(12,803) |
||
Other |
(113) |
(689) |
(501) |
(600) |
0 |
||
Net Cash Flow |
8,192 |
(7,685) |
80 |
(1,981) |
13,600 |
||
Opening net debt/(cash) |
|
|
(17,251) |
(25,990) |
(18,301) |
(18,381) |
(16,400) |
Net impact of disposals etc |
0 |
0 |
0 |
0 |
0 |
||
Other |
547 |
(4) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(25,990) |
(18,301) |
(18,381) |
(16,400) |
(30,000) |
Source: Company accounts, Edison Investment Research
|
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