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GBP47.00
▲ 95.00 (2.06%)
Market capitalisation
GBP1,320m
Research: TMT
Having delivered 16% top-line growth in H119, 4imprint’s trading update indicates similar progress is likely for the full year. We previously assumed some slight tailing off in H2, so have now edged up our FY19 revenue estimate by $10m, lifting EBITDA by $0.6m. Management’s revenue target of $1bn by FY22e looks likely to be achieved well ahead of schedule. The extension to the Oshkosh distribution centre was completed on time and within the $5m budget, facilitating that forecast revenue growth. We regard the current share price as well underpinned, with further potential upside.
4imprint Group |
Demand remains robust |
Trading update |
Media |
4 November 2019 |
Share price performance
Business description
Next events
Analysts
4imprint Group is a research client of Edison Investment Research Limited |
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Having delivered 16% top-line growth in H119, 4imprint’s trading update indicates similar progress is likely for the full year. We previously assumed some slight tailing off in H2, so have now edged up our FY19 revenue estimate by $10m, lifting EBITDA by $0.6m. Management’s revenue target of $1bn by FY22e looks likely to be achieved well ahead of schedule. The extension to the Oshkosh distribution centre was completed on time and within the $5m budget, facilitating that forecast revenue growth. We regard the current share price as well underpinned, with further potential upside.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
627.5 |
42.5 |
107.7 |
58.1 |
34.1 |
1.6 |
12/18 |
738.4 |
46.1 |
133.5 |
70.0 |
27.5 |
1.9 |
12/19e |
855.0 |
54.6 |
152.4 |
82.5 |
24.1 |
2.2 |
12/20e |
950.0 |
60.7 |
169.3 |
92.5 |
21.7 |
2.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Brand and core marketing investment
The brief trading update attributes the group’s continuing strong revenue growth to both new and existing customers. This is testament to the success of the management of the marketing mix. The addition of traditional TV and radio campaigns to increase the resonance of the group’s brand among the wider target audience has proved to have been a good call and will continue to be an element of ongoing marketing spending. The US/China tariffs are a manageable irritant, with the promotional products distributors all in the same boat as alternate suppliers are not readily available at scale. The completion of the Oshkosh extension creates more capacity for processing apparel orders while there is no further news at this juncture on the additional office space needed as the group builds scale.
Earnings forecasts again edged ahead
We have raised our H2 revenue growth expectations from 13% to the 16% indicated in management’s update. This lifts EBITDA, operating profit and PBT by $0.6m and EPS by 1% to 152.4c. We expect top-line growth to moderate in FY20 to just over 11%, which is still well ahead of the c 3–4% market growth and translates into 11% EPS growth. Our model now indicates end-FY19 net cash of $39.5m, which allows plenty of scope to fund new offices and to continue to invest in marketing both at the brand level and in the core business.
Valuation: Premium for quality, growing earnings
4imprint’s shares trade at a premium to quoted UK marketing services peers, but it has little in common with them operationally. The group’s long, positive trading record, high cash conversion (a five-year average of 103%) and progressive dividend also single it out. A DCF on our updated numbers suggests a value of £26.72 (on conservative assumptions of a 9% WACC and 3% terminal growth), from £26.01 at the time of our last note. An 8% WACC assumption would generate a value of £31.64.
Exhibit 1: Financial summary
$000s |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
627,518 |
738,418 |
855,000 |
950,000 |
Cost of Sales |
(422,299) |
(500,531) |
(576,591) |
(640,667) |
||
Gross Profit |
205,219 |
237,887 |
278,409 |
309,333 |
||
EBITDA |
|
|
45,092 |
48,507 |
58,138 |
64,038 |
Operating Profit (before amort. and except). |
42,580 |
45,862 |
53,944 |
59,844 |
||
Intangible Amortisation |
(464) |
0 |
0 |
0 |
||
Operating Profit (after amort. and before except.) |
42,116 |
45,862 |
53,944 |
59,844 |
||
Operating Profit |
41,284 |
44,322 |
52,930 |
58,844 |
||
Net Interest |
(122) |
227 |
692 |
870 |
||
Net pension finance charge |
(503) |
(403) |
(406) |
(406) |
||
Profit Before Tax (norm) |
|
|
42,458 |
46,089 |
54,636 |
60,714 |
Profit Before Tax (IFRS) |
|
|
40,659 |
44,146 |
53,216 |
59,308 |
Tax |
(11,734) |
(8,952) |
(11,707) |
(13,048) |
||
Profit After Tax (norm) |
30,724 |
37,453 |
43,328 |
48,066 |
||
Profit After Tax (IFRS) |
28,925 |
35,194 |
41,508 |
46,260 |
||
Discontinued businesses |
0 |
0 |
0 |
0 |
||
Net income (norm) |
|
|
30,291 |
37,511 |
42,928 |
47,669 |
Net income (IFRS) |
|
|
28,925 |
35,194 |
41,508 |
46,260 |
Average Number of Shares Outstanding (m) |
28.0 |
28.0 |
28.1 |
28.1 |
||
EPS - normalised (c) |
|
|
107.7 |
133.5 |
152.4 |
169.3 |
EPS - (IFRS) (c) |
|
|
103.1 |
125.6 |
147.8 |
164.7 |
Dividend per share (c) |
58.1 |
70.0 |
82.5 |
92.5 |
||
Gross Margin (%) |
32.7 |
32.2 |
32.6 |
32.6 |
||
EBITDA Margin (%) |
7.2 |
6.6 |
6.8 |
6.7 |
||
Operating Margin (before GW and except.) (%) |
6.8 |
6.2 |
6.3 |
6.3 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
25,879 |
25,732 |
31,346 |
30,752 |
Intangible Assets |
0 |
0 |
0 |
0 |
||
Other intangible assets |
1,138 |
1,084 |
1,084 |
1,084 |
||
Tangible Assets |
18,829 |
19,012 |
23,518 |
22,924 |
||
Right of use assets |
0 |
0 |
1,108 |
1,108 |
||
Deferred tax assets |
5,912 |
5,636 |
5,636 |
5,636 |
||
Current Assets |
|
|
82,831 |
84,234 |
106,723 |
132,845 |
Stocks |
7,940 |
9,878 |
11,666 |
13,222 |
||
Debtors |
44,124 |
46,872 |
54,272 |
60,302 |
||
Cash |
30,767 |
27,484 |
40,785 |
59,321 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(49,024) |
(50,752) |
(60,050) |
(66,579) |
Creditors |
(48,878) |
(50,752) |
(58,765) |
(65,294) |
||
Short term / lease borrowings |
0 |
0 |
(1,285) |
(1,285) |
||
Long Term Liabilities |
|
|
(18,604) |
(15,947) |
(13,226) |
(10,226) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities (including pension) |
(18,604) |
(15,947) |
(13,226) |
(10,226) |
||
Net Assets |
|
|
41,082 |
43,267 |
64,794 |
86,792 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
44,576 |
45,583 |
59,800 |
64,500 |
Net Interest |
(122) |
227 |
692 |
870 |
||
Tax |
(12,751) |
(7,844) |
(12,108) |
(13,445) |
||
Capex |
(2,359) |
(2,855) |
(8,700) |
(3,600) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Pension contributions |
(3,675) |
(3,932) |
(3,500) |
(3,500) |
||
Financing |
(1,359) |
(465) |
(2,500) |
(500) |
||
Dividends |
(15,845) |
(32,984) |
(20,814) |
(24,093) |
||
Other |
0 |
0 |
(821) |
(821) |
||
Net Cash Flow |
8,465 |
(2,270) |
12,049 |
19,411 |
||
Opening net debt/(cash) |
|
|
(21,683) |
(30,767) |
(27,484) |
(39,500) |
Net impact of disposals etc |
0 |
0 |
0 |
0 |
||
Other |
619 |
(1,013) |
(33) |
(11) |
||
Closing net debt/(cash) |
|
|
(30,767) |
(27,484) |
(39,500) |
(58,900) |
Source: Company accounts, Edison Investment Research
|
|
Research: TMT
Claranova is planning to buy out the minority interests in its Internet business for a total of €87.9m in a mixture of cash and equity. On completion, Claranova will own 100% of its Internet business (up from the current c 40% level), and the sellers will own 15.87% of Claranova. In our view, this is a positive move as it gives the company full control over the business while incentivising the new shareholders to continue to contribute to the success of the group.
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