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Research: TMT
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.
4imprint Group |
Market leader |
Interim results |
Media |
31 July 2018 |
Share price performance
Business description
Next events
Analysts
4imprint Group is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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
|
|
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