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Research: TMT
4imprint’s first half results show the benefit of record levels of customer demand, with revenue up 58% year-on-year and operating profit rising from $3.6m in H121 to $44.0m in H122. July’s trading update had indicated FY22 revenue breaking through management’s long-held $1bn target, with a material uplift in operating profit to over $75m. With H122 revenue per marketing dollar at $8.19, up from $5.46 in H121, we have substantially raised our profit forecasts for FY22 and FY23 and now publish our first thoughts on FY24. The group continues to invest in its product and people as well as its marketing and generates significant amounts of cash, giving it an excellent opportunity to continue to build market share.
4imprint Group |
Big gains in marketing productivity |
Half year results |
Media |
10 August 2022 |
Share price performance
Business description
Next events
Analyst
4imprint Group is a research client of Edison Investment Research Limited |
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4imprint’s first half results show the benefit of record levels of customer demand, with revenue up 58% year-on-year and operating profit rising from $3.6m in H121 to $44.0m in H122. July’s trading update had indicated FY22 revenue breaking through management’s long-held $1bn target, with a material uplift in operating profit to over $75m. With H122 revenue per marketing dollar at $8.19, up from $5.46 in H121, we have substantially raised our profit forecasts for FY22 and FY23 and now publish our first thoughts on FY24. The group continues to invest in its product and people as well as its marketing and generates significant amounts of cash, giving it an excellent opportunity to continue to build market share.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
560.0 |
3.8 |
11.0 |
0.0 |
364.4 |
N/A |
12/21 |
787.3 |
30.2 |
80.3 |
45.0 |
49.9 |
1.1 |
12/22e |
1,050.2 |
79.7 |
215.3 |
120.0 |
18.6 |
3.0 |
12/23e |
1,161.0 |
90.2 |
243.4 |
135.0 |
16.5 |
3.4 |
12/24e |
1,277.1 |
99.7 |
269.0 |
150.0 |
14.9 |
3.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Margin uplift from strong marketing-driven demand
H122 revenue of $515.5m was 58% ahead of the prior year and was generated from 886k total orders processed (H121: 616k). This implies an average order value of $581 in the period, up from $531 in H121 and $521 in H119, the most recent ‘normal’ trading year. This is partly a reflection of mix but also indicates that customers are tending to promote their brands with higher-quality promotional merchandise. The striking uplift, though, is in revenue per marketing dollar, where the positive impact of the targeted spend on TV to drive awareness of the 4imprint brand is now clear. Over FY12–21, revenue per marketing dollar stayed in a narrow range of $5.00–6.43, so the increase to $8.19 represents a real step change and is clearly reflected in the achievable operating margin and hence our higher forecasts.
Buoyancy tempered by costs and supply
Our updated implied H222 figures show continuing good revenue growth, but at a less frenetic pace of 16%. We anticipate slight pressure on gross margin from pricing and supply issues with management prioritising good long-term client relationships over aggressive price recovery. However, we do expect that the better marketing productivity will continue, which is the key element to the uplift in our expected FY22 operating profit to $80m from $54m and to $91m from $65m in FY23e.
Valuation: Revenue and margin upgrades lift DCF
The share price responded very positively to July’s trading update when the share price was £23.30. At the time of our May update, our DCF suggested a value of £39.27 per share. The upgrade to forecasts, in particular the step change uplift to operating margin, takes this to £52.82 per share with weaker sterling boosting the implied value to £54.58 per share, significantly ahead of the current share price.
Focus on doing the simple things right pays off
4imprint is a comparatively straightforward business and to some extent stands as a bellwether to the health of corporate America. At the height of the pandemic, volumes and revenues dropped away sharply, but management was able to maintain investment in the workforce and in ‘maintenance’ levels of marketing in the knowledge of the substantial reserves of cash that had been accumulated during more favourable conditions.
This commitment across stakeholder groups – employees, customers, suppliers and shareholders – is now serving the group well as the economy continues to recover. With labour markets tight, having a strong local reputation is a valuable asset to attract and retain staff. Similarly, working with suppliers in a partnership-type relationship can allow for more flex in pricing negotiations and prioritisation when supply chain issues arise.
Given the scale and diversity of the overall promotional products market in the United States (see Outlook note), it is likely that 4imprint is gaining market share from a wide array of competitors, some of which may be struggling to fund working capital as demand rebounds.
Updated forecasts
The July update indicated that operating profit would be substantially ahead of forecasts at the time and not less than $75m. With an ‘encouraging’ start to H222, we have revised our current year operating profit forecast to $80m, with uplifts to FY23 following through from the higher base levels. We are making an early stab at numbers for FY24, with top-line growth reverting to a more ‘normalised’ rate of 10% and operating margins maintained at the higher level. Further expansion of operating margin is less likely, with investment in marketing and in people being scaled to deliver the top line growth.
Exhibit 1: Summary forecast changes
EPS (c) |
PBT ($m) |
EBITDA ($m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2022e |
144.8 |
215.3 |
+49 |
53.5 |
79.7 |
+49 |
59.3 |
85.5 |
+44 |
2023e |
172.8 |
243.4 |
+41 |
64.8 |
90.2 |
+39 |
70.5 |
96.1 |
+36 |
2024e |
N/A |
269.0 |
N/A |
N/A |
99.7 |
N/A |
N/A |
105.6 |
N/A |
Source: Edison Investment Research
Cash resource builds
Cash at the end of the half year was $67.1m and the group has no financial debt. Very unusually, there was a small acquisition made in the reporting period. In April, 4imprint bought a small, local apparel screen printer that had previously been a supplier to the group for $1.7m. This will bring in-house an area of expertise and capacity to sit alongside the existing apparel embroidery operation and is unlikely to be the precursor for a more extensive foray into M&A.
The group is also investing $2m in a solar array at its distribution centre, expected to be fully operational by the end of this month and which should, in time, produce around half of the power requirements of the distribution centre.
Given the improvement in earnings, we also expect to see a strong uplift in dividend payments, with cover remaining at around 1.8x. Our modelling implies a year-end cash balance of just under $80m, building to $108m for end FY23e and $139m by end FY24e.
Exhibit 2: Financial summary
$000s |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
560,040 |
787,322 |
1,050,202 |
1,160,968 |
1,277,065 |
Cost of Sales |
(402,100) |
(561,306) |
(749,884) |
(830,092) |
(913,101) |
||
Gross Profit |
157,940 |
226,016 |
300,318 |
330,876 |
363,963 |
||
EBITDA |
|
|
8,905 |
35,660 |
85,516 |
96,100 |
105,600 |
Operating profit (before amort. and excepts.) |
|
|
3,972 |
30,646 |
80,016 |
90,500 |
100,000 |
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
3,972 |
30,646 |
80,016 |
90,500 |
100,000 |
||
Net Interest |
(129) |
(417) |
(300) |
(300) |
(300) |
||
Profit Before Tax (norm) |
|
|
3,843 |
30,229 |
79,716 |
90,200 |
99,700 |
Profit Before Tax (IFRS) |
|
|
3,843 |
30,229 |
79,716 |
90,200 |
99,700 |
Tax |
(753) |
(7,643) |
(19,132) |
(21,648) |
(23,928) |
||
Profit After Tax (norm) |
3,090 |
22,586 |
60,584 |
68,552 |
75,772 |
||
Profit After Tax (IFRS) |
3,090 |
22,586 |
60,584 |
68,552 |
75,772 |
||
Discontinued businesses |
0 |
0 |
0 |
0 |
0 |
||
Net income (norm) |
|
|
3,090 |
22,586 |
60,584 |
68,552 |
75,772 |
Net income (IFRS) |
|
|
3,090 |
22,586 |
60,584 |
68,552 |
75,772 |
Average Number of Shares Outstanding (m) |
28.0 |
28.1 |
28.1 |
28.1 |
28.1 |
||
EPS - normalised fully diluted (c) |
|
|
11.0 |
80.3 |
215.3 |
243.4 |
269.0 |
EPS - (IFRS) (c) |
|
|
11.0 |
80.5 |
215.8 |
244.0 |
269.7 |
Dividend per share (c) |
0.0 |
45.0 |
120.0 |
135.0 |
150.0 |
||
Gross Margin (%) |
28.2 |
28.7 |
28.6 |
28.5 |
28.5 |
||
EBITDA Margin (%) |
1.6 |
4.5 |
8.1 |
8.3 |
8.3 |
||
Operating Margin (before GW and except.) (%) |
0.7 |
3.9 |
7.6 |
7.8 |
7.8 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
43,269 |
40,011 |
47,296 |
49,856 |
52,416 |
Intangible Assets |
0 |
0 |
1,010 |
1,010 |
1,010 |
||
Other intangible assets |
1,100 |
1,045 |
1,045 |
1,045 |
1,045 |
||
Tangible Assets |
24,832 |
24,667 |
28,167 |
28,067 |
27,967 |
||
Right of use assets |
13,065 |
11,725 |
10,500 |
9,160 |
7,820 |
||
Deferred tax assets |
4,272 |
600 |
600 |
600 |
600 |
||
Retirement benefit asset |
|
|
0 |
1974 |
5974 |
9974 |
13974 |
Current Assets |
|
|
89,812 |
127,771 |
185,735 |
226,458 |
266,214 |
Stocks |
11,271 |
20,559 |
25,367 |
28,323 |
28,818 |
||
Debtors |
38,775 |
63,589 |
78,459 |
87,602 |
96,362 |
||
Cash |
39,766 |
41,589 |
79,875 |
108,500 |
139,000 |
||
Other |
0 |
2,034 |
2,034 |
2,034 |
2,034 |
||
Current Liabilities |
|
|
(51,118) |
(73,027) |
(99,423) |
(109,788) |
(120,652) |
Creditors |
(50,001) |
(71,877) |
(98,273) |
(108,638) |
(119,502) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
(1,117) |
(1,150) |
(1,150) |
(1,150) |
(1,150) |
||
Long Term Liabilities |
|
|
(16,592) |
(11,789) |
(10,911) |
(9,828) |
(8,628) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
(12,089) |
(10,939) |
(10,061) |
(8,861) |
(7,661) |
||
Other long term liabilities |
(4,503) |
(850) |
(850) |
(967) |
(967) |
||
Net Assets |
|
|
65,371 |
82,966 |
122,697 |
156,698 |
189,350 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
16,462 |
22,846 |
90,500 |
94,750 |
102,000 |
Net Interest |
(13) |
(409) |
(300) |
(300) |
(300) |
||
Tax |
(507) |
(6,414) |
(15,532) |
(19,148) |
(20,328) |
||
Capex |
(3,724) |
(3,465) |
(9,000) |
(5,500) |
(5,500) |
||
Acquisitions/disposals |
0 |
0 |
(1,700) |
0 |
0 |
||
Pension contributions |
(13,278) |
(4,589) |
(4,000) |
(4,000) |
(4,000) |
||
Financing |
941 |
(843) |
(900) |
(900) |
(900) |
||
Dividends |
0 |
(4,134) |
(19,586) |
(35,086) |
(39,298) |
||
Other/ Capital portion of lease repayments |
(1,418) |
(1,117) |
(1,200) |
(1,200) |
(1,200) |
||
Net Cash Flow |
(1,537) |
1,875 |
38,282 |
28,616 |
30,474 |
||
Opening net debt/(cash) |
|
|
(41,136) |
(39,766) |
(41,589) |
(79,875) |
(108,500) |
Net impact of disposals etc |
0 |
0 |
0 |
0 |
0 |
||
Other |
167 |
(53) |
3 |
8 |
0 |
||
Closing net debt/(cash) |
|
|
(39,766) |
(41,589) |
(79,875) |
(108,500) |
(138,975) |
Source: company accounts, Edison Investment Research
|
|
Research: TMT
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