4imprint Group — Branding evolution

4imprint Group (LSE: FOUR)

Last close As at 20/06/2024

GBP59.30

130.00 (2.24%)

Market capitalisation

GBP1,671m

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Research: TMT

4imprint Group — Branding evolution

4imprint has announced another set of strong results, accompanied by a supplementary dividend of $0.60 to be paid alongside the final. It has also outlined a programme to build a more substantial longer-term business through adding brand awareness campaigns to the existing marketing spend. Revenues have grown at a CAGR of 18.1% over the last six years. Guidance for the next five years is for double-digit growth to reach the $1bn level by FY22 and we have lifted our forecasts to reflect this. Profit growth is restrained in the near term by the additional marketing spend, but should move on faster in FY19, with EPS further boosted by a lower US tax charge.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Branding evolution

Full year results

Media

9 March 2018

Price

1,820p

Market cap

£510m

£:$1.39

Net cash ($m) at 31 December 2017

30.8

Shares in issue

28.0m

Free float

91.9

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.9)

(1.1)

6.9

Rel (local)

(6.9)

1.0

7.3

52-week high/low

2020p

1550p

Business description

4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. 97% of 2017 revenues were generated in the US and Canada.

Next events

AGM

Early May 2018

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

4imprint is a research client of Edison Investment Research Limited

4imprint has announced another set of strong results, accompanied by a supplementary dividend of $0.60 to be paid alongside the final. It has also outlined a programme to build a more substantial longer-term business through adding brand awareness campaigns to the existing marketing spend. Revenues have grown at a CAGR of 18.1% over the last six years. Guidance for the next five years is for double-digit growth to reach the $1bn level by FY22 and we have lifted our forecasts to reflect this. Profit growth is restrained in the near term by the additional marketing spend, but should move on faster in FY19, with EPS further boosted by a lower US tax charge.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS**
(c)

P/E
(x)

Yield
(%)

12/16

558.2

38.4

98.7

52.5

25.6

2.1

12/17

627.5

42.5

107.7

58.1

23.5

2.3

12/18e

691.5

42.5

117.9

62.5

21.5

2.5

12/19e

760.7

49.7

135.9

77.5

18.6

3.1

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Dividend excludes supplementary distribution.

Brand campaign to leverage marketing spend

Management has clearly delivered on its strategy over FY12-17, growing the top line on stable operating margins and, crucially, addressing and de-risking the pension situation to the point where it is no longer an issue. The group is inherently highly cash generative. The new capital allocation framework prioritises organic growth initiatives, a key one of which is to channel additional marketing spend to promote brand awareness which, in turn, should boost the efficacy of the existing budget. Revenue per marketing dollar would fall in the short term as new channels such as radio and TV are added to the mix, but this is a good opportunity to build the 4imprint brand as the ‘go-to’ distributor of promotional products. Although a (possibly the) leading distributor, 4imprint only has a share of around 2.5% of the market, estimated by management at $25bn in North America.

Supplementary dividend

The level of cash on the balance sheet reached $30.8m at the end of December and management has proposed payment of a “supplementary dividend” distribution of 60 cents alongside the final payment of 40 cents. With the pension funding requirements greatly diminished, there is still plenty of resource to fund the expansion of the business, invest in additional marketing and pay a progressive dividend. Our modelling shows a cash balance of £24.6m at the end of FY18.

Valuation: Reflects strong record

4imprint continues to trade at a premium to the UK small/mid-cap marketing service companies, which are currently valued at a FY18e EV/EBITDA of 9.5x and a P/E of 13.2x. This reflects its differentiated and focused business model, and consistent record of strong earnings growth (26% EPS CAGR FY11-19e, 12% EPS CAGR FY15-19e). It has a cash-rich balance sheet and a growing dividend stream, underpinning the share price.

FY17 results in line

Management had updated the market in January and the formal result contained no significant surprises. Revenue growth picked up in H217 as expected, partly from the effect of slightly weaker comparatives, partly from the benefits of the phasing of marketing spend. Gross profit margin was broadly stable, as were operating margins (management’s strategy has been to manage marketing spend so as to keep margins within a tight range).

Underlying earnings per share were ahead by 9%, slightly below the rate of growth of PBT as US-generated profits grew. The bias to the US (North America represented 97% of FY17 revenues) becomes much more of a positive in terms of tax in FY18, when we model the underlying rate at 22% from 29% in FY17.

The figures contained an exceptional charge of $454k, again relating to the pension changes, but this should be the last exceptional from this source as the pension buyout is now complete.

Strong cash conversion

Operating cash flow was again very strong (and cash conversion has averaged 98% over FY11-17), with tight working capital control, and the dividend declared was ahead 11%, compared with an increase in fully diluted normalised EPS of 9%. Given the amount of cash generated, and having very much an organic growth-driven strategy, management has decided to make an additional distribution of 60 cents per share, without compromising the plans for investment in brand building.

Adjusted forecasts

Our revised forecasts take into account the shift in priorities, which should drive stronger growth into FY19, with FY18 marking time in income terms while the benefits play out.

Exhibit 1: Adjustments to forecasts

EPS (c)

PBT ($m)

EBITDA ($m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2017

105.1

107.7

+2

42.2

42.5

+1

45.4

45.1

-1

2018e

126.3

117.9

-7

46.1

42.5

-8

49.3

45.6

-8

2019e

135.8

135.9

U/C

50.0

49.7

-1

53.1

52.8

-1

Source: Company accounts, Edison Investment Research

Evolving the marketing strategy – plenty to go for

There were some small scale experiments with radio advertising in H217 and, as is usual for 4imprint, the outcomes have been closely scrutinised and are informing the planning process. 4imprint is and remains a data-driven direct marketing business. While it may seem counterintuitive to be looking at traditional media channels, this investment programme is incremental to the existing spend patterns and should help to leverage that spend. The additional funding is of the order of $7m, in the context of an overall spend of about $120m. It should help extend the brand reach within the target customer profile, rather than broadening into new demographics. The core audience remains business owners with more than 25 employees, ie those with a sufficiently large business to benefit from a quality range of promotional products, but not so large as to want to commission items in house. The overall market remains highly fragmented and the $1bn revenue target looks eminently achievable, in our view.

Exhibit 2: Financial summary

$000s

2015

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

497,219

558,223

627,518

691,500

760,650

Cost of Sales

(334,622)

(374,137)

(422,299)

(465,374)

(511,911)

Gross Profit

162,598

184,087

205,219

226,126

248,739

EBITDA

 

 

35,478

40,766

45,062

45,641

52,789

Operating Profit (before amort. and except).

33,519

38,377

42,580

42,477

49,625

Intangible Amortisation

(510)

(499)

(464)

(464)

(464)

Operating Profit (after amort. and before except.)

33,009

37,878

42,116

42,013

49,161

Operating Profit

31,963

34,696

41,284

41,313

48,461

Net Interest

30

(24)

(122)

45

50

Net pension finance charge

(836)

(521)

(503)

(503)

(503)

Profit Before Tax (norm)

 

 

33,549

38,353

42,458

42,522

49,675

Profit Before Tax (FRS 3)

 

 

31,157

34,151

40,659

40,855

48,008

Tax

(8,462)

(9,672)

(11,734)

(9,397)

(11,042)

Profit After Tax (norm)

25,087

28,681

30,724

33,125

38,633

Profit After Tax (FRS 3)

22,695

24,479

28,925

31,458

36,966

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

24,587

27,773

30,291

33,167

38,250

Net income (IFRS)

 

 

22,695

24,479

28,925

31,458

36,966

Average Number of Shares Outstanding (m)

27.9

28.1

28.0

28.0

28.0

EPS - normalised and fully diluted(c)

 

87.5

98.7

107.7

117.9

135.9

EPS - (IFRS) (c)

 

 

81.3

87.3

103.1

112.2

131.8

Dividend per share (c)

38.9

52.5

58.1

62.5

77.5

Gross Margin (%)

32.7

33.0

32.7

32.7

32.7

EBITDA Margin (%)

7.1

7.3

7.2

6.6

6.9

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

6.7

6.9

6.8

6.1

6.5

BALANCE SHEET

Fixed Assets

 

 

23,753

25,050

25,879

26,179

26,779

Intangible Assets

0

0

0

0

0

Other intangible assets

1,211

1,082

1,138

1,138

1,138

Tangible Assets

18,154

18,938

18,829

19,129

19,729

Investments

0

0

0

0

0

Deferred tax assets

4,388

5,030

5,912

5,912

5,912

Current Assets

 

 

66,035

65,662

82,904

80,753

100,379

Stocks

4,460

4,179

5,356

5,784

6,362

Debtors

43,194

39,800

46,781

50,520

55,572

Cash

18,381

21,683

30,767

24,449

38,445

Other

0

0

0

0

0

Current Liabilities

 

 

(38,222)

(40,363)

(47,821)

(51,631)

(56,553)

Creditors

(37,254)

(40,363)

(47,675)

(51,485)

(56,407)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(23,114)

(21,024)

(18,869)

(15,476)

(12,476)

Long term borrowings

0

0

0

0

0

Other long term liabilities (including pension)

(23,114)

(21,024)

(18,869)

(15,476)

(12,476)

Net Assets

 

 

28,452

29,325

42,093

39,825

58,129

CASH FLOW

Operating Cash Flow

 

 

30,622

46,804

44,576

44,173

51,184

Net Interest

30

(23)

(122)

45

50

Tax

(8,730)

(9,423)

(12,751)

(9,355)

(11,425)

Capex

(10,912)

(3,267)

(2,359)

(3,000)

(3,300)

Acquisitions/disposals

0

0

0

0

0

Pension contributions

(825)

(17,354)

(3,675)

(3,600)

(3,600)

Financing

0

(270)

(1,359)

(700)

0

Dividends

(9,604)

(12,141)

(15,845)

(33,882)

(18,913)

Other

(501)

0

0

0

0

Net Cash Flow

80

4,326

8,465

(6,318)

13,996

Opening net debt/(cash)

 

 

(18,301)

(18,381)

(21,683)

(30,767)

(24,449)

Net impact of disposals etc

0

0

0

0

0

Other

0

(1,024)

619

0

(0)

Closing net debt/(cash)

 

 

(18,381)

(21,683)

(30,767)

(24,449)

(38,445)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4imprint Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4imprint Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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