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Research: TMT
4imprint Group
4imprint Group |
Interims and dividend increase |
Interim results |
Media |
2 August 2016 |
Share price performance
Business description
Next events
Analysts
4imprint is a research client of Edison Investment Research Limited |
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4imprint continues to grow its top line well ahead of US GDP and market, driven by ongoing investment in marketing, people and systems. Like-for-like H116 revenues were up over 15%, compared with our unchanged FY16 forecast of +13%. The large but fragmented market, estimated at over US$25bn, gives a substantial further opportunity, with organic growth the preferred (and proven) route. With the pension situation addressed and marketing spend well supported, the interim dividend has been lifted 35%.
Year |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
415.8 |
27.9 |
71.5 |
32.4 |
27.3 |
1.7 |
12/15 |
497.2 |
33.5 |
87.5 |
38.9 |
22.3 |
2.0 |
12/16e |
560.0 |
37.7 |
94.6 |
52.5 |
20.7 |
2.7 |
12/17e |
616.0 |
41.6 |
104.6 |
57.5 |
18.7 |
2.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Clear organic growth strategy
The group has a clear strategy: to grow organically, while delivering a broadly constant operating margin. By running an efficient operation, with data-driven direct marketing techniques targeted at stimulating both offline and online sales, the group has been continuing to win market share from smaller, local distributors. The additional sales come from both new and existing customers, with the total number of customised orders processed in H116 up by 14% like-for-like on the comparative period. Gross margins remain consistent and sales and administration costs were well controlled, although an additional week’s trading pushed marketing costs ahead by 20%. However, this is the key driver of future revenues and, over the last five years, each marketing dollar has delivered $5.97 on average in revenue.
Dividend growth moves up the priority list
The business is inherently highly cash generative, with little need for major capital spend, although in FY15, there was a spike with the $9m investment at its base in Oshkosh to support the five-year growth plan. The major call on cash over recent years has been the legacy defined benefit pension scheme, which has now been considerably de-risked. A one-off payment of £10m ($14.5m) in H116 leaves the scheme smaller and less potentially volatile, with future regular contributions in our model at $3.0m. Despite this lump sum payment, the group generated $9.2m of free cash flow in H1 and had net cash of $20.0m at 30 June. The interim dividend at 16.32c is 35% ahead of that for H115 and we assume a similar uplift for the final.
Valuation: Justified premium rating
While on a P/E basis 4imprint trades ahead of the smaller UK-based marketing services sector (FY16e P/E of 20.7x vs 11.1x), these stocks have little in common in terms of business model or geography. There are no direct quoted peers in either the UK or the US. The premium rating reflects the further growth opportunity and management’s record in delivering on its ambitions, including consistent high growth in earnings per share.
Dividend only change to estimates
Although H116 revenue growth at 17% is well ahead of our full year number, there is some benefit to these reported figures from a timing difference (an additional week’s trading in H116 vs H115), which is quantified in the statement at $4.5m, or around 2%. For the full year, FY16 will have 52 weeks against FY15’s 53, equivalent to around $4m, although this was known when we drew up our figures earlier in the year. We have therefore left our revenue and earnings estimates unchanged, but with a greater degree of comfort.
The group should derive modest benefit from sterling weakness post the Brexit vote, principally at the cash flow level. 97% of H116 revenues were earned in US dollars, with UK earnings also ahead but growing at a slower rate of 7%. Sterling’s importance to the group is in two key respects:
■
The scale of the net pension liability, and contributions to the legacy scheme (which are made in sterling).
■
Dividend payments: these are declared in US dollars and translated to sterling at the then current rate.
Legacy pension scheme shrinks in significance
Over recent years, the sorting out of the legacy pensions issue has been the highest priority for the group in terms of capital allocation. This scheme has been closed for a number of years and has 1,087 pensioners. Of these, 906 now have insured benefits and 483 are deferred. Following moves to ‘buy-in’ the liabilities over recent periods, 76% of total scheme liabilities are now insured. More recently, 4imprint has been running a programme to move pensions in payment across to a ‘buy-out’ basis and move deferred pensioners across into a new scheme, which will allow the associated gross assets and liabilities to come off the group balance sheet. The one-off contribution of £10m was to facilitate this process and provide funding for the new smaller plan, and these figures also carry an exceptional charge of $2.5m, reflecting the cost of the exercise. The deficit at end H116 was $16.4m, compared with $23.1m at the end of FY15.
With last year’s upgrade investment at Oshkosh (in both facilities and systems), the internal requirements for cash are greatly reduced. Hence the substantial increase in the level of dividend payout. The indication is for a similar level of uplift at the year-end. For FY17, we have assumed that the dividend continues to rise in proportion to earnings. Despite this higher level of payout, our model shows cash (there is no debt) of $15.6m at end FY16, rising to $26.6m by end FY17.
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 (c) |
27.7 |
32.4 |
38.9 |
52.5 |
57.5 |
||
Dividend per share (p) |
17.0 |
20.5 |
26.6 |
39.8 |
43.6 |
||
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 |
69,028 |
85,346 |
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 |
15,600 |
26,575 |
||
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 |
38,868 |
51,990 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
22,879 |
27,230 |
30,622 |
38,272 |
43,544 |
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) |
(12,132) |
(15,208) |
||
Other |
(113) |
(689) |
(501) |
(600) |
0 |
||
Net Cash Flow |
8,192 |
(7,685) |
80 |
(2,777) |
10,975 |
||
Opening net debt/(cash) |
|
|
(17,251) |
(25,990) |
(18,301) |
(18,381) |
(15,600) |
Net impact of disposals etc |
0 |
0 |
0 |
0 |
0 |
||
Other |
547 |
(4) |
0 |
(4) |
0 |
||
Closing net debt/(cash) |
|
|
(25,990) |
(18,301) |
(18,381) |
(15,600) |
(26,575) |
Source: Company accounts, Edison Investment Research
|
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