4imprint Group — Business model strengths play out

4imprint Group (LSE: FOUR)

Last close As at 16/07/2024

GBP61.60

−20.00 (−0.32%)

Market capitalisation

GBP1,736m

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Research: TMT

4imprint Group — Business model strengths play out

4imprint’s trading update indicates some encouraging signs, albeit within continuing general caution around the impact of COVID-19 on the US economy. Average order value is increasing as the proportion of apparel in the mix rises, with overall weekly revenue over the last four weeks around 65% of prior year. This is in line with the assumptions underlying our model and there are no changes to our forecasts. The group has a strong balance sheet, with $40.1m of cash at end October (lease debt only). We continue to view 4imprint as a high-quality investment proposition.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Business model strengths play out

Trading update

Media

30 October 2020

Price

2,090p

Market cap

£587m

$1.29/£

Net cash ($m) at 30 October 2020

40.1

Shares in issue

28.1m

Free float

98.2%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.4

(7.2)

(28.9)

Rel (local)

19.4

0.0

(9.3)

52-week high/low

3,500p

1,320p

Business description

4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. In FY19, 97% of revenues were generated in the US and Canada.

Next events

FY20 trading update

Mid-January 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

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

4imprint’s trading update indicates some encouraging signs, albeit within continuing general caution around the impact of COVID-19 on the US economy. Average order value is increasing as the proportion of apparel in the mix rises, with overall weekly revenue over the last four weeks around 65% of prior year. This is in line with the assumptions underlying our model and there are no changes to our forecasts. The group has a strong balance sheet, with $40.1m of cash at end October (lease debt only). We continue to view 4imprint as a high-quality investment proposition.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

738.4

46.1

129.4

70.0

20.8

2.6

12/19

860.8

55.6

157.2

84.0**

17.2

3.1

12/20e

535.0

0.5

0.3

0.0

N/A

N/A

12/21e

600.0

15.0

40.6

20.0

66.4

0.7

Note: *PBT and EPS are normalised, excluding exceptional items. **84c declared, 25c paid.

Apparel volumes now level with prior year

Volumes and order value continue to tick back up from the initial sharp retrenchment in April, when year-on-year weekly order intake was down at 20% of prior year. For the last four weeks, this is running at 60% of prior year, with weekly revenues up 65%. The emphasis on driving the apparel offering over the last couple of years, with investment in in-house finishing (embroidery or printing), has given 4imprint greater resilience, with these unit volumes now broadly level with those delivered last year. With trade fair activity suppressed, demand for hard goods that are typically given away (mugs, pens, water bottles, etc) has unsurprisingly been lower. Apparel has a higher inherent utility and is commonly used within organisations, as well as for giveaways.

Marketing at the front and centre

4imprint’s sophisticated marketing effort can be rapidly tailored to focus on different categories, with spend also flexed to reflect the opportunities, as described in our September Outlook note. The recent tilt more towards brand promotion continues to help build awareness and drive new customer acquisition, which should reap greater rewards as more normal trading patterns resume. The group’s cash resource, with $40.1m at end October (our model shows $22.5m at end FY20, post seasonal reversal of the working capital cash flows), means that there is plenty of firepower to increase marketing spend when circumstances are more responsive.

Valuation: Strong fundamentals and many unknowns

With continuing uncertainty regarding how and at what speed the US economy will continue to recover, our earnings forecasts remain tentative and valuation judgements based on them are subjective. 4imprint has a market-leading position, a low fixed-cost base and limited capital requirements, attractive cash flow characteristics and a cash positive balance sheet, all of which justify its premium rating. 4imprint trades on an FY19 EV/EBITDA of 12.0x, compared to marketing services stocks on 6.9x.

Exhibit 1: Financial summary

$000s

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

738,418

860,844

535,000

600,000

Cost of Sales

(500,531)

(585,543)

(379,437)

(410,813)

Gross Profit

237,887

275,301

155,564

189,187

EBITDA

 

 

48,507

59,144

3,875

18,775

Operating Profit (before amort. and except).

 

 

45,862

54,860

475

14,975

Intangible Amortisation

0

0

0

0

Operating Profit (after amort. and before except.)

 

 

45,862

54,860

475

14,975

Operating Profit

44,322

53,620

(625)

13,775

Net Interest

227

751

25

25

Net pension finance charge

(403)

(378)

(378)

(378)

Profit Before Tax (norm)

 

 

46,089

55,611

500

15,000

Profit Before Tax (IFRS)

 

 

44,146

53,993

(578)

13,822

Tax

(8,952)

(11,276)

(21)

(2,865)

Profit After Tax (norm)

36,734

44,335

79

11,735

Profit After Tax (IFRS)

35,194

42,717

(599)

10,957

Discontinued businesses

(100)

0

0

0

Net income (norm)

 

 

36,360

44,203

78

11,388

Net income (IFRS)

 

 

35,094

42,717

(1,399)

10,157

Average Number of Shares Outstanding (m)

28.0

28.0

28.0

28.0

EPS - normalised (c)

 

 

129.4

157.2

0.3

40.6

EPS - (IFRS) (c)

 

 

125.6

152.4

(2.1)

39.1

Dividend per share (c)

70.0

84.0

0.0

20.0

Gross Margin (%)

32.2

32.0

29.1

31.5

EBITDA Margin (%)

6.6

6.9

0.7

3.1

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

6.2

6.4

0.1

2.5

BALANCE SHEET

Fixed Assets

 

 

25,732

31,844

30,577

30,077

Intangible Assets

0

0

0

0

Other intangible assets

1,084

1,152

1,152

1,152

Tangible Assets

19,012

24,369

24,687

24,587

Right of use assets

0

1,985

400

0

Deferred tax assets

5,636

4,338

4,338

4,338

Current Assets

 

 

84,234

105,631

61,690

70,653

Stocks

9,878

11,456

7,476

8,384

Debtors

46,872

53,039

31,315

35,119

Cash

27,484

41,136

22,900

27,150

Other

0

0

0

0

Current Liabilities

 

 

(50,752)

(60,839)

(39,957)

(44,363)

Creditors

(50,752)

(59,209)

(39,557)

(44,363)

Short term / lease borrowings

0

(1,630)

(400)

0

Long Term Liabilities

 

 

(15,947)

(13,688)

(1,348)

(968)

Long term borrowings

0

(415)

0

0

Other long term liabilities (including pension)

(15,947)

(13,273)

(1,348)

(968)

Net Assets

 

 

43,267

62,948

50,962

55,399

CASH FLOW

Operating Cash Flow

 

 

45,583

57,796

600

20,700

Net Interest

227

751

25

25

Tax

(7,844)

(10,318)

(141)

(3,212)

Capex

(2,855)

(8,178)

(3,718)

(3,700)

Acquisitions/disposals

0

0

0

0

Pension contributions

(3,932)

(3,593)

(12,700)

(3,500)

Financing

(465)

(2,567)

900

(2,200)

Dividends

(32,984)

(20,659)

0

(1,853)

Other

0

(1,687)

(1,622)

(1,622)

Net Cash Flow

(2,270)

11,545

(16,656)

4,638

Opening net debt/(cash)

 

 

(30,767)

(27,484)

(39,091)

(22,500)

Net impact of disposals etc

0

0

0

0

Other

(1,013)

62

65

12

Closing net debt/(cash)

 

 

(27,484)

(39,091)

(22,500)

(27,150)

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 £49,500 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 2020 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.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 £49,500 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 2020 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.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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