4imprint Group — Market leader

4imprint Group (LSE: FOUR)

Last close As at 17/05/2024

GBP61.70

−40.00 (−0.64%)

Market capitalisation

GBP1,739m

More on this equity

Research: TMT

4imprint Group — Market leader

4imprint’s interim results show that its recently-adopted strategy of additional investment in brand awareness is recruiting new customers even better than initial trials had indicated. The investment is holding back FY18e operating margin (already built into forecasts), but underpins our market-beating growth expectations. The ambition to reach US$1bn of revenue by FY22 looks increasingly achievable. Our FY18e and FY19e revenue numbers rise by 2%, with consequent uplift to operating profit. A lower anticipated tax charge further lifts projected EPS. The group is highly cash generative, funding growth and a progressive dividend.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Market leader

Interim results

Media

31 July 2018

Price

1940p

Market cap

£545m

£1:US$1.31

Net cash ($m) at 30 June 2018

26.5

Shares in issue

28.1m

Free float

91.9%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

11.5

11.5

23.7

Rel (local)

10.7

8.7

18.2

52-week high/low

2020.0p

1575.0p

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

Trading update

Early November 2018

Year-end update

Early January 2019

Preliminary results

Early March 2019

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Neil Shah

+44 (0)20 3077 5715

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

4imprint’s interim results show that its recently-adopted strategy of additional investment in brand awareness is recruiting new customers even better than initial trials had indicated. The investment is holding back FY18e operating margin (already built into forecasts), but underpins our market-beating growth expectations. The ambition to reach US$1bn of revenue by FY22 looks increasingly achievable. Our FY18e and FY19e revenue numbers rise by 2%, with consequent uplift to operating profit. A lower anticipated tax charge further lifts projected EPS. The group is highly cash generative, funding growth and a progressive dividend.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

558.2

38.4

98.7

52.5

25.7

2.1

12/17

627.5

42.5

107.7

58.1

23.6

2.3

12/18e

720.0

44.8

125.9

65.0

20.0

2.6

12/19e

792.0

52.0

146.1

80.0

17.4

3.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Traditional media campaign boost

Having built reach online and via catalogues, with marketing spend directed by the use of data and predicated on product, the use of traditional media (TV and radio) to boost brand awareness announced with the finals in March initially looked incongruous. This campaign ($7m of additional spend) has reached a broader audience, more quickly and more efficiently, than expected. 138k new customers were recruited in H118 (H117: 125k), placing 13% more orders year-on-year. Orders from existing customers were up by 18%, with an average order size across the group of around $510. Fulfilling these additional orders led to some short-term operational inefficiency, with a slight increase in cost of sales, but we anticipate that this will be mitigated as lessons learned are put into practice.

Gaining scale

Industry body ASI estimates the size of the US promotional products market at around $23.6bn, having grown 3.2% in 2017. The larger distributors show a faster pace of growth at 8% (FY17: 4imprint revenue up 12.4%). The ASI now cites 4imprint as the largest distributor, having overtaken Staples Promotional Products. Despite the rapid pace of growth, the group’s market share remains less than 3%. If the industry continues to increase at the same rate and 4imprint achieves its FY22 ambition of $1bn of revenue, this would still represent less than 4% market share.

Valuation: Premium for strong record, prospects

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 7.9x and a P/E of 12.1x. This reflects its differentiated and focused business model and consistent record of strong earnings growth (27% EPS CAGR FY11-19e, 14% EPS CAGR FY15-19e). It has a cash-rich balance sheet and a growing dividend stream, underpinning the share price

Earnings edging up

H118 revenues were ahead by 17% over H117. The rapid uptick in volumes as the brand marketing campaign launched led to some supplier and carrier issues. These were rapidly resolved so clients were not disadvantaged, at a (modest) inevitable additional cost. Gross margin consequently dipped by 0.7pp to 32.2% in the period. Our modelling suggests this recovering to H217 levels from H218.

The additional marketing spend held the operating profit on a par with the prior year, at both the reported and underlying basis. The company is now stating underlying operating profit after share option-related charges, whereas Edison takes the underlying level to be before this cost.

Adjustments to forecasts

Exhibit 1: Revisions to estimates

Year end

Normalised EPS (c)

Rev ($m)

PBT ($m)

EBITDA ($m)

December

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2017

107.7

627.5

42.5

45.1

2018e

122.0

125.9

+3

707.5

720.0

+2

44.0

44.8

+2

47.1

47.9

+2

2019e

140.1

146.1

+4

778.3

792.0

+2

51.2

52.0

+2

54.3

55.1

+1

Source: Company accounts, Edison Investment Research

Our revenue numbers have been adjusted up to reflect the successful customer recruitment campaign which falls through to the EBITDA level. The EPS forecast is raised slightly more, reflecting guidance from the company over the expected tax charge which should benefit from the US corporation taxation changes. We have also lifted our dividend expectations from 63.5c to 65c for FY18e and from 78c to 80c for FY19e.

4imprint has inherently high levels of cash conversion. Guidance is for a capex figure of $3.0m in FY18, a little ahead of depreciation, while the company is likely to pay around $3.7m into the defined benefit pension scheme – no longer a material matter in the context of the group.

Our model suggests a net cash figure of $24.7m at the year-end FY18 (from $26.5m at the half-year end). The cash would then build through FY19e, with $41.5m by end December. The company is now net interest positive.

4imprint paid out a supplementary dividend for FY17 of 60c alongside the 40c ‘normal’ dividend payment when the cash balance was greater than was needed for operational or strategic purposes.

Exhibit 2: Financial summary

$000s

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

558,223

627,518

720,000

792,000

Cost of Sales

(374,137)

(422,299)

(486,974)

(534,089)

Gross Profit

184,087

205,219

233,026

257,911

EBITDA

 

 

40,766

45,062

47,869

55,114

Operating Profit (before amort. and except).

38,377

42,580

44,705

51,950

Intangible Amortisation

(499)

(464)

(464)

(464)

Operating Profit (after amort. and before except.)

37,878

42,116

44,241

51,486

Operating Profit

34,696

41,284

43,541

50,786

Net Interest

(24)

(122)

45

50

Net pension finance charge

(521)

(503)

(503)

(503)

Profit Before Tax (norm)

 

 

38,353

42,458

44,750

52,000

Profit Before Tax (FRS 3)

 

 

34,151

40,659

43,083

50,333

Tax

(9,672)

(11,734)

(9,047)

(10,570)

Profit After Tax (norm)

28,681

30,724

35,703

41,430

Profit After Tax (FRS 3)

24,479

28,925

34,036

39,763

Discontinued businesses

0

0

0

0

Net income (norm)

 

 

27,773

30,291

35,353

41,080

Net income (IFRS)

 

 

24,479

28,925

34,036

39,763

Average Number of Shares Outstanding (m)

28.1

28.0

28.0

28.0

EPS - normalised (c)

 

 

98.7

107.7

125.9

146.1

EPS - (IFRS) (c)

 

 

87.3

103.1

121.5

141.8

Dividend per share (c)

52.5

58.1

65.0

80.0

Gross Margin (%)

33.0

32.7

32.4

32.6

EBITDA Margin (%)

7.3

7.2

6.6

7.0

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

6.9

6.8

6.2

6.6

BALANCE SHEET

Fixed Assets

 

 

25,050

25,879

26,179

26,779

Intangible Assets

0

0

0

0

Other intangible assets

1,082

1,138

1,138

1,138

Tangible Assets

18,938

18,829

19,129

19,729

Investments

0

0

0

0

Deferred tax assets

5,030

5,912

5,912

5,912

Current Assets

 

 

65,662

82,904

83,936

106,626

Stocks

4,179

5,356

6,022

6,625

Debtors

39,800

46,781

53,192

58,512

Cash

21,683

30,767

24,721

41,490

Other

0

0

0

0

Current Liabilities

 

 

(40,363)

(47,821)

(53,206)

(57,929)

Creditors

(40,363)

(47,675)

(53,060)

(57,783)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(21,024)

(18,869)

(15,476)

(12,476)

Long term borrowings

0

0

0

0

Other long term liabilities (including pension)

(21,024)

(18,869)

(15,476)

(12,476)

Net Assets

 

 

29,325

42,093

41,433

63,001

CASH FLOW

Operating Cash Flow

 

 

46,804

44,576

45,542

54,153

Net Interest

(23)

(122)

45

50

Tax

(9,423)

(12,751)

(9,398)

(10,920)

Capex

(3,267)

(2,359)

(3,000)

(3,300)

Acquisitions/disposals

0

0

0

0

Pension contributions

(17,354)

(3,675)

(3,700)

(3,600)

Financing

(270)

(1,359)

(1,420)

0

Dividends

(12,141)

(15,845)

(34,115)

(19,614)

Other

0

0

0

0

Net Cash Flow

4,326

8,465

(6,046)

16,769

Opening net debt/(cash)

 

 

(18,381)

(21,683)

(30,767)

(24,721)

Net impact of disposals etc

0

0

0

0

Other

(1,024)

619

0

(0)

Closing net debt/(cash)

 

 

(21,683)

(30,767)

(24,721)

(41,490)

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 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

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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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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 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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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