4imprint Group — Brand investment turbocharges growth

4imprint Group (LSE: FOUR)

Last close As at 17/07/2024

GBP61.50

−10.00 (−0.16%)

Market capitalisation

GBP1,736m

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Research: TMT

4imprint Group — Brand investment turbocharges growth

4imprint’s FY22 results are impressive, with 45% organic revenue growth and an uplift in operating margin to 9.0% (FY21: 3.9%) despite some gross margin pressure from inflation. Much of this is due to the step-change in marketing efficiency via investment in the 4imprint brand, which has delivered large numbers of new customers and higher order counts. The group is inherently highly cash generative, and we already assumed that a special dividend was likely. This is now confirmed, at twice the level we anticipated, at $2/share. The pace of growth will likely moderate this year and there will need to be some investment to cater for the larger volumes, but momentum remains good, and our forecasts are edged ahead.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Brand investment turbocharges growth

FY22 results

Media

15 March 2023

Price

4,470p

Market cap

£1,255m

US$1.22/£

Net cash and short-term deposits ($m) at 31 December 2022

86.8

Shares in issue

28.1m

Free float

97.6%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.9)

5.4

60.2

Rel (local)

2.3

3.7

54.3

52-week high/low

4,755p

2,240p

Business description

4imprint Group is a leading direct marketer of promotional products in the United States, Canada, the UK and Ireland. In FY22, 98% of revenues were generated in the United States and Canada.

Next events

Trading update

Early May 2023

Analysts

Fiona Orford-Williams

+44 (20) 3077 5739

Milo Bussell

+44 (20) 3077 5700

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

4imprint’s FY22 results are impressive, with 45% organic revenue growth and an uplift in operating margin to 9.0% (FY21: 3.9%) despite some gross margin pressure from inflation. Much of this is due to the step-change in marketing efficiency via investment in the 4imprint brand, which has delivered large numbers of new customers and higher order counts. The group is inherently highly cash generative, and we already assumed that a special dividend was likely. This is now confirmed, at twice the level we anticipated, at $2/share. The pace of growth will likely moderate this year and there will need to be some investment to cater for the larger volumes, but momentum remains good, and our forecasts are edged ahead.

Year
end

Revenue
($m)

PBT*
($m)

EPS*
(c)

DPS**
(c)

P/E
(x)

Yield
(%)

12/21

787

30.2

80.3

45.0

66.8

0.8

12/22

1,140

103.7

285.0

160.0

18.8

3.0

12/23e

1,275

110.7

294.8

165.0

18.2

3.1

12/24e

1,410

127.4

343.8

190.0

15.6

3.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items. **Excluding special dividends.

Major uplift in revenue per marketing dollar

It is now beyond question that the adoption of investment in promoting the 4imprint brand as a significant element of the marketing mix has delivered excellent results. Revenue generated per dollar of marketing spend was $8.86 in FY22, up from $6.17 in FY21. It is encouraging that the behaviour patterns of those customers recruited over the last couple of years has mimicked or exceeded that of more established customers. The substantial increase in order throughput has tested operational limits without compromising customer satisfaction levels, to our knowledge, and there will now need to be additional investment in people and capacity to equip the group for the next stage of growth. Our FY23 revenue forecast is edged up 2% and, as in our January update, we anticipate adjusted operating margin settling back a little to 8.5%, from the 9.0% achieved in FY22.

Special dividend of $2/share

Net cash balances at the year-end were $86.8m, more than is required for investment in the business to support growth and act as a buffer for unexpected working capital swings. In addition to the 256% uplift in the ordinary dividend for FY22, to $1.60, management is proposing the payment of a special dividend of $2.00 per share, to be paid in June alongside the FY22 final of $1.20. Our forecast for end-FY23 net cash is still a substantial positive balance of $49.3m.

Valuation: DCF suggests meaningful further upside

The share price responded very positively to the July and November 2022 and January 2023 trading updates, with the result that the share price effectively doubled from its June 2022 low. A DCF (WACC of 8.0%; terminal growth of 3%, as before) generates an implied value of £65.64, little changed on the £65.73 at the time of our January update and still well ahead of the current share price.

Exhibit 1: Financial summary

$000s

2020

2021

2022

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

560,040

787,322

1,140,286

1,275,000

1,410,000

Cost of Sales

(402,100)

(561,306)

(818,670)

(915,450)

(1,012,380)

Gross Profit

157,940

226,016

321,616

359,550

397,620

EBITDA

 

 

8,905

35,660

108,428

115,232

132,187

Operating profit (before amort. and excepts.)

 

 

3,972

30,646

102,902

108,700

125,655

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

3,972

30,646

102,902

108,700

125,655

Net Interest

(129)

(417)

804

2,000

1,750

Profit Before Tax (norm)

 

 

3,843

30,229

103,706

110,700

127,405

Profit Before Tax (IFRS)

 

 

3,843

30,229

103,706

110,700

127,405

Tax

(753)

(7,643)

(23,563)

(27,675)

(30,577)

Profit After Tax (norm)

3,090

22,586

80,143

83,025

96,828

Profit After Tax (IFRS)

3,090

22,586

80,143

83,025

96,828

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

3,090

22,586

80,143

83,025

96,828

Net income (IFRS)

 

 

3,090

22,586

80,143

83,025

96,828

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

285.0

294.8

343.8

EPS - (IFRS) (c)

 

 

11.0

80.5

285.6

295.5

344.6

Dividend per share (c)

0.0

45.0

160.0

165.0

190.0

Special dividend per share (c)

0.0

0.0

200.0

0.0

0.0

Gross Margin (%)

28.2

28.7

28.2

28.2

28.2

EBITDA Margin (%)

1.6

4.5

9.5

9.0

9.4

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

0.7

3.9

9.0

8.5

8.9

BALANCE SHEET

Fixed Assets

 

 

43,269

40,011

47,940

52,005

55,133

Intangible Assets

0

0

1,010

1,010

1,010

Other intangible assets

1,100

1,045

957

957

957

Tangible Assets

24,832

24,667

29,255

31,023

31,491

Right of use assets

13,065

11,725

13,103

11,400

10,060

Deferred tax assets

4,272

600

2,381

2,381

2,381

Retirement benefit asset

 

 

0

1,974

1,234

5,234

9,234

Current Assets

 

 

89,812

127,771

192,353

170,354

206,849

Stocks

11,271

20,559

18,090

20,733

21,209

Debtors

38,775

63,589

87,511

100,296

110,915

Cash and short-term deposits

39,766

41,589

86,752

49,325

74,725

Other

0

2,034

0

0

0

Current Liabilities

 

 

(51,118)

(73,027)

(87,401)

(93,841)

(103,340)

Creditors

(50,001)

(71,877)

(85,966)

(92,406)

(102,190)

Short term borrowings

0

0

0

0

0

Lease liabilities

(1,117)

(1,150)

(1,435)

(1,435)

(1,150)

Long Term Liabilities

 

 

(16,592)

(11,789)

(12,672)

(11,722)

(10,522)

Long term borrowings

0

0

0

0

0

Lease liabilities

(12,089)

(10,939)

(12,315)

(11,365)

(10,165)

Other long term liabilities

(4,503)

(850)

(357)

(357)

(357)

Net Assets

 

 

65,371

82,966

140,220

116,796

148,120

CASH FLOW

Operating Cash Flow

 

 

16,462

22,846

101,317

101,700

113,500

Net Interest

(13)

(409)

699

2,000

1,750

Tax

(507)

(6,414)

(20,755)

(25,175)

(28,077)

Capex

(3,724)

(3,465)

(8,011)

(8,300)

(7,000)

Acquisitions/disposals

0

0

(1,700)

0

0

Pension contributions

(13,278)

(4,589)

(4,367)

(4,000)

(4,000)

Financing

941

(843)

(866)

(900)

(900)

Dividends

0

(4,134)

(18,722)

(101,551)

(48,649)

Other/ Capital portion of lease repayments

(1,418)

(1,117)

(2,432)

(1,200)

(1,200)

Net Cash Flow

(1,537)

1,875

45,163

(37,426)

25,424

Opening net debt/(cash)

 

 

(41,136)

(39,766)

(41,589)

(86,752)

(49,325)

Net impact of disposals etc

0

0

0

0

0

Other

167

(53)

0

(1)

(25)

Closing net debt/(cash)

 

 

(39,766)

(41,589)

(86,752)

(49,325)

(74,725)

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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