International Greetings
International Greetings |
Non-stationary stationery |
Trading update |
Care & household goods |
20 January 2016 |
Share price performance
Business description
Next events
Analysts
International Greetings is a research client of Edison Investment Research Limited |
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International Greetings’ (IGR) Q3 trading update shows that the key Christmas sales period has gone to plan and that the group is on track to meet market forecasts for the year to end March. The regaining of positive momentum in the US is particularly encouraging, with the new management expanding horizons with exports into Canada, Mexico and Brazil. The share price has performed well over recent months and the valuation is now a fairer reflection of progress to date and the prospects for continuing growth.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/14 |
224.5 |
8.1 |
9.1 |
0.0 |
20.3 |
N/A |
03/15 |
229.0 |
9.6 |
11.8 |
1.0 |
15.6 |
0.5 |
03/16e |
233.5 |
10.1 |
12.1 |
2.0 |
15.2 |
1.1 |
03/17e |
237.0 |
11.1 |
12.8 |
3.0 |
14.4 |
1.6 |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. EPS are shown as fully diluted.
Q3 looking positive across the board
No figures were given in the trading update (which comes hard on the heels of December’s interims), but it confirms that all regions are trading profitably. The benefits of the investment programme in giftwrap manufacture in Holland and Wales and in upgrading capacity in China are all paying back at least as well as planned. The current investment in conversion in the US, albeit at a lesser financial scale, underpins momentum for increasing sales in domestic and export markets. The Australia joint venture has been rebuilding its business and has seen particular success in expanding its product range into party ware, a move that will have been closely watched by other group territories. A strong range of licensed properties (including Star Wars, Minions and Frozen) has contributed good sales, with some licences extended into new territories and across new channels.
Converting profit into cash
A few years back, it may have been the easy option for management to manage a decline, assuming that markets were mature, margins under pressure and that the balance sheet was heavily burdened with debt. Instead, the team has energised the business, invested in production and distribution channels, building sales and gaining market share. The focus on converting the resulting profits into cash has reduced net debt from £68.5m at end FY09 to our forecast of £26.0m at end FY16 despite cumulative capital spend of £23.4m over that period.
Valuation: Better reflecting prospects
The share price has risen from 77p in April 2015 as the market has recognised the success of management’s strategy to date. The record in converting profits to cash supports the case that expansion can continue and a progressive dividend stream paid to shareholders. The valuation is now at a premium on calendar 2015 EV/EBITDA with a consumer supplies-based peer group, reflecting IGR’s improved growth prospects and lengthening record of delivery against expectations.
Exhibit 1: Financial summary
2014 |
2015 |
2016e |
2017e |
|||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
224,462 |
229,025 |
233,500 |
237,000 |
Cost of Sales |
(185,244) |
(189,048) |
(192,347) |
(195,240) |
||
Gross Profit |
39,218 |
39,977 |
41,152 |
41,759 |
||
EBITDA |
|
|
16,352 |
16,850 |
17,180 |
18,163 |
Operating Profit (before amort and except) |
|
11,320 |
12,315 |
12,645 |
13,628 |
|
Intangible Amortisation |
(576) |
(428) |
(410) |
(400) |
||
Exceptionals |
(2,298) |
(1,235) |
0 |
0 |
||
Share-based payments |
(82) |
(623) |
(600) |
(750) |
||
Operating Profit |
8,364 |
10,029 |
11,635 |
12,478 |
||
Net Interest |
(3,177) |
(2,726) |
(2,500) |
(2,500) |
||
Profit Before Tax (norm) |
|
|
8,143 |
9,589 |
10,145 |
11,128 |
Profit Before Tax (FRS 3) |
|
|
5,269 |
7,926 |
9,735 |
10,728 |
Tax |
(1,582) |
(1,346) |
(2,135) |
(2,644) |
||
Profit After Tax (norm) |
6,561 |
8,243 |
8,010 |
8,484 |
||
Profit After Tax (FRS 3) |
3,687 |
6,580 |
7,600 |
8,084 |
||
Average Number of Shares Outstanding (m) |
57.5 |
58.1 |
58.8 |
58.8 |
||
EPS - normalised (p) |
|
|
9.4 |
12.1 |
12.4 |
13.1 |
EPS - normalised fully diluted (p) |
|
|
9.1 |
11.8 |
12.1 |
12.8 |
EPS - (IFRS) (p) |
|
|
5.2 |
10.7 |
12.1 |
12.9 |
Dividend per share (p) |
0.0 |
1.0 |
2.0 |
3.0 |
||
Gross Margin (%) |
17.5 |
17.5 |
17.6 |
17.6 |
||
EBITDA Margin (%) |
7.3 |
7.4 |
7.4 |
7.7 |
||
Operating Margin (before GW and except.) (%) |
5.0 |
5.4 |
5.4 |
5.8 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
67,664 |
65,688 |
70,238 |
69,485 |
Intangible Assets |
31,950 |
31,692 |
34,350 |
34,966 |
||
Tangible Assets |
35,714 |
33,996 |
35,888 |
34,519 |
||
Investments |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
76,261 |
71,312 |
74,333 |
74,928 |
Stocks |
48,460 |
46,162 |
46,593 |
48,001 |
||
Debtors |
19,690 |
22,304 |
22,740 |
23,427 |
||
Cash |
8,111 |
2,846 |
5,000 |
3,500 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(51,965) |
(45,722) |
(44,800) |
(43,443) |
Creditors |
(39,139) |
(39,982) |
(39,800) |
(39,443) |
||
Short term borrowings |
(12,826) |
(5,740) |
(5,000) |
(4,000) |
||
Long Term Liabilities |
|
|
(34,799) |
(28,694) |
(30,356) |
(26,356) |
Long term borrowings |
(32,232) |
(26,479) |
(26,000) |
(22,000) |
||
Other long term liabilities |
(2,567) |
(2,215) |
(4,356) |
(4,356) |
||
Net Assets |
|
|
57,161 |
62,584 |
69,415 |
74,613 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
13,724 |
17,851 |
15,800 |
16,750 |
Net Interest |
(3,221) |
(2,775) |
(2,500) |
(2,500) |
||
Tax |
(60) |
(1,263) |
(1,940) |
(2,639) |
||
Capex |
(5,291) |
(2,100) |
(6,000) |
(5,500) |
||
Acquisitions/disposals |
140 |
(1,451) |
0 |
0 |
||
Financing/Other |
1,225 |
(1,347) |
0 |
0 |
||
Dividends |
(1,014) |
(829) |
(1,340) |
(1,930) |
||
Net Cash Flow |
5,503 |
8,086 |
4,020 |
4,181 |
||
Opening net debt/(cash) |
|
|
42,138 |
36,947 |
29,373 |
26,000 |
HP finance leases initiated |
296 |
0 |
0 |
0 |
||
Other |
(608) |
(512) |
(647) |
(681) |
||
Closing net debt/(cash) |
|
|
36,947 |
29,373 |
26,000 |
22,500 |
Source: Company accounts, Edison Investment Research
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