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Market capitalisation
GBP1,430m
Research: TMT
4imprint’s interim results show a strong pick-up in demand from both existing and new customers. Management’s decisions taken early in the onset of the pandemic to retain its staff base and maintain a market presence through advertising have put the group in a strong position to capitalise on the rebound in the US economy. A return to paying dividends is a clear indication of confidence and we have increased our revenue forecasts for FY21 and FY22 by 11% in both years. The step-up in projections at an earnings level are lower, given the higher US tax charges. 4imprint’s balance sheet remains strong, with end-June net cash of $53m.
4imprint Group |
Robust demand recovery |
Interim results |
Media |
11 August 2021 |
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 a strong pick-up in demand from both existing and new customers. Management’s decisions taken early in the onset of the pandemic to retain its staff base and maintain a market presence through advertising have put the group in a strong position to capitalise on the rebound in the US economy. A return to paying dividends is a clear indication of confidence and we have increased our revenue forecasts for FY21 and FY22 by 11% in both years. The step-up in projections at an earnings level are lower, given the higher US tax charges. 4imprint’s balance sheet remains strong, with end-June net cash of $53m.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
860.8 |
55.6 |
157.2 |
84.0 |
24.8 |
2.2 |
12/20 |
560.0 |
5.0 |
13.8 |
0.0 |
N/A |
N/A |
12/21e |
775.0 |
22.6 |
62.6 |
35.0 |
62.3 |
0.9 |
12/22e |
850.0 |
32.0 |
88.6 |
45.0 |
44.0 |
1.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Stronger orders lead to upgrades
H121 revenues were 23% ahead of the prior year, with order counts picking up from the 82% of 2019 levels reported in May to over 96% of 2019 levels for June, with an overall figure of 79% year-to-date. The improvement has been even greater in July, with order levels running 12% ahead of July 2019. It is particularly encouraging that orders from new customers have been even higher, up 18% on July 2019. While it is tempting to extrapolate through H221, there may be an element of ‘catch-up’ as the US economy reopens, so our revised forecasts reflect some moderation. We raise our full year revenue estimate from $700m to $775m and for FY22e from $765m to $850m, having upgraded in March and again in May as the recovery has become more established. There is a note of caution in the statement on pricing, supply and transportation costs, which may constrain operating margins. However, the key component of the margin outturn is the group’s marketing spend. Our modelling shows the operating margin rebuilding through FY22, but still some way off historical levels of 6.0–7.0%.
Cash reassurance and reinstated dividend
Given the severity of the disruption to the US promotional goods market in 2020, with industry body ASI estimating the market value (excluding PPE) to have reduced by 43%, cash conservation was a sensible policy. With $52.8m in cash at end June (lease liabilities only) and a highly cash-generative business model, the board is now re-introducing dividend payments, with an interim of 15c per share.
Valuation: Premium retained
4imprint benefits from 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 FY21 EV/EBITDA of 39.3x, compared to marketing services stocks on 16.0x, but we expect that recovery and growth in future years will narrow this valuation gap.
Rebuilding towards FY19 levels
The interim figures show a major improvement over H120, but that is not really a useful comparison, given the circumstances of that trading period. We show below the pattern over two years, which show the recovery under way. However, the market has obviously not yet fully recovered, and its health varies by region across the United States. Both Canada and the UK, where lockdowns have been stricter, have continued to be difficult in the period.
Exhibit 1: Comparison of H121 results with H120 and H119
$m |
H119 |
H120 |
% change |
H121 |
% change |
||||
Revenue |
|||||||||
North America |
394.4 |
260.5 |
-34% |
321.7 |
23% |
||||
UK and Ireland |
10.6 |
5.3 |
-50% |
5.1 |
-3% |
||||
Total |
405.1 |
265.8 |
-34% |
326.8 |
23% |
||||
Underlying operating profit |
|||||||||
Direct Marketing operations |
21.2 |
1.9 |
-91% |
5.7 |
196% |
||||
Head office cost |
-1.7 |
-1.8 |
3% |
-1.9 |
7% |
||||
Total |
19.4 |
0.1 |
-99% |
3.8 |
2800% |
||||
Underlying operating profit margin |
4.8% |
0.0% |
1.2% |
||||||
Source: 4imprint accounts. Note: Underlying is before defined pension benefit charges.
The operating profit margin, which remains well below historic levels, continues to be managed through the flexibility of the spend on marketing. While profitability could have been delivered at higher levels over this difficult trading period by reducing that spend, the management view was that maintaining spend, particularly on the TV-centred, brand-based campaigns, would put the group in a better position once demand started to pick up. It remains central to the strategy for H221 and on, when there should be a good opportunity to build market share. Marketing spend was 18.3% of revenue in H121, from 17.7% in H120 and 19.5% in H119. However, since the introduction of TV and radio to the mix, there is now much more flexibility in how that spend is managed, with a reduction in the spend on print and an emphasis on building brand recognition, putting the brand in front of potential customers rather than competing for Google keywords.
Swings and roundabouts on the way
The statement highlights the challenges of managing the supply chain through the pandemic, with product shortages but also real hurdles to be tackled in logistics. Supply chains can be very long and delivery schedules lengthy and we have taken these potential issues into consideration in our margin assumptions within the model. They are obviously not unique to 4imprint, and the group’s collaborative stance with its suppliers should help ameliorate them to some extent.
New non-execs add resource
4imprint has two new non-executive directors (from 1 September), who bring directly relevant experience. Lindsay Beardsell is executive VP and general counsel at Tate & Lyle (ex Ladbrokes Coral and SuperGroup) and adds to the legal, governance and commercial resource, while Jaz Rabadia will be able to support the group’s sustainability agenda, given her experience as director of energy, sustainability and social impact at WeWork and before that at Starbucks and Sainsbury’s.
Revised forecasts
Our revisited forecasts suggest that revenues in FY22 may be close to achieving the levels seen in FY19, but there are no guarantees that the reopening of the US economy will be linear. Economic stimulus should be beneficial as it flows down to 4imprint’s core customer base. There is also good potential for gains in market share from those distributors that are less financially robust and may also be struggling to reorientate themselves having focused on supplying personal protective equipment (PPE). The operational gearing of the additional revenue on operating profit may be curtailed by additional costs as described, while for EPS the effect is compounded by increases in US corporation tax. Nevertheless, our forecast EPS still nudges ahead.
Exhibit 2: Changes to forecasts
EPS (c) |
Revenue ($m) |
Operating profit ($m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2020 |
13.8 |
13.8 |
- |
560 |
560 |
- |
5.0 |
5.0 |
- |
2021e |
58.5 |
62.6 |
+7 |
700 |
775 |
+11 |
21.1 |
23.0 |
+9 |
2022e |
86.9 |
88.6 |
+2 |
765 |
850 |
+11 |
31.3 |
32.4 |
+4 |
Source: 4imprint accounts, Edison Investment Research
Exhibit 3: Financial summary
$000s |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
860,844 |
560,040 |
775,000 |
850,000 |
Cost of Sales |
(585,543) |
(402,100) |
(556,298) |
(610,300) |
||
Gross Profit |
275,301 |
157,940 |
218,702 |
239,700 |
||
EBITDA |
|
|
59,144 |
8,417 |
26,600 |
36,100 |
Operating Profit (before amort. and except). |
|
|
54,860 |
5,017 |
23,000 |
32,400 |
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Operating Profit (after amort. and before except.) |
|
|
54,860 |
5,017 |
23,000 |
32,400 |
Exceptionals |
0 |
0 |
0 |
0 |
||
Impairment |
0 |
0 |
0 |
0 |
||
DB Pension administration charges |
(312) |
(420) |
(420) |
(420) |
||
Pensions and share options |
(928) |
(625) |
(800) |
(800) |
||
Operating Profit |
53,620 |
3,972 |
21,780 |
31,180 |
||
Net Interest |
751 |
(25) |
(400) |
(400) |
||
Net pension finance charge |
(378) |
(104) |
(104) |
(104) |
||
Profit Before Tax (norm) |
|
|
55,611 |
4,992 |
22,600 |
32,000 |
Profit Before Tax (IFRS) |
|
|
53,993 |
3,843 |
21,276 |
30,676 |
Tax |
(11,276) |
(753) |
(5,106) |
(7,680) |
||
Profit After Tax (norm) |
44,335 |
4,239 |
17,494 |
24,320 |
||
Profit After Tax (IFRS) |
42,717 |
3,090 |
16,170 |
22,996 |
||
Discontinued businesses |
0 |
0 |
0 |
0 |
||
Net income (norm) |
|
|
44,203 |
3,894 |
17,628 |
24,960 |
Net income (IFRS) |
|
|
42,717 |
3,090 |
16,170 |
22,996 |
Average Number of Shares Outstanding (m) |
28.0 |
28.0 |
28.1 |
28.1 |
||
EPS - normalised (c) |
|
|
157.2 |
13.8 |
62.6 |
88.6 |
EPS - (IFRS) (c) |
|
|
152.4 |
11.0 |
57.6 |
81.9 |
Dividend per share (c) |
84.0 |
0.0 |
35.0 |
45.0 |
||
Gross Margin (%) |
32.0 |
28.2 |
28.2 |
28.2 |
||
EBITDA Margin (%) |
6.9 |
1.5 |
3.4 |
4.2 |
||
Operating Margin (before GW and except.) (%) |
6.4 |
0.9 |
3.0 |
3.8 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
31,844 |
43,269 |
41,704 |
41,504 |
Intangible Assets |
0 |
0 |
0 |
0 |
||
Other intangible assets |
1,152 |
1,100 |
1,100 |
1,100 |
||
Tangible Assets |
24,369 |
24,832 |
24,632 |
24,432 |
||
Right of use assets |
1,985 |
13,065 |
11,700 |
11,700 |
||
Deferred tax assets |
4,338 |
4,272 |
4,272 |
4,272 |
||
Current Assets |
|
|
105,631 |
89,812 |
115,848 |
125,617 |
Stocks |
11,456 |
11,271 |
15,753 |
17,278 |
||
Debtors |
53,039 |
38,775 |
54,195 |
59,439 |
||
Cash |
41,136 |
39,766 |
45,900 |
48,900 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(60,839) |
(51,118) |
(68,252) |
(74,749) |
Creditors |
(59,209) |
(50,001) |
(67,135) |
(73,632) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Lease liabilities |
(1,630) |
(1,117) |
(1,117) |
(1,117) |
||
Long Term Liabilities |
|
|
(13,688) |
(16,592) |
(12,267) |
(12,267) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Lease liabilities |
(415) |
(12,089) |
(12,089) |
(12,089) |
||
Other long term liabilities (including pension) |
(13,273) |
(4,503) |
(178) |
(178) |
||
Net Assets |
|
|
62,948 |
65,371 |
77,033 |
80,105 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
56,248 |
7,322 |
25,100 |
30,700 |
Net Interest |
706 |
(13) |
(400) |
(400) |
||
Tax |
(10,318) |
(507) |
(4,972) |
(7,040) |
||
Capex |
(8,178) |
(3,724) |
(3,400) |
(3,500) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Pension contributions |
(3,593) |
(4,138) |
(4,100) |
(4,100) |
||
Financing |
(2,567) |
941 |
(800) |
(800) |
||
Dividends |
(20,659) |
0 |
(4,200) |
(10,755) |
||
Other |
(1,687) |
(1,418) |
(1,100) |
(1,100) |
||
Net Cash Flow |
9,952 |
(1,537) |
6,128 |
3,005 |
||
Opening net debt/(cash) |
|
|
(27,484) |
(41,136) |
(39,766) |
(45,900) |
Net impact of disposals etc |
3,638 |
0 |
0 |
0 |
||
Other |
62 |
167 |
6 |
(5) |
||
Closing net debt/(cash) |
|
|
(41,136) |
(39,766) |
(45,900) |
(48,900) |
Source: Company accounts, Edison Investment Research
|
|
Research: Healthcare
Ergomed’s H121 trading update highlights that operational momentum continues to be strong following its stellar performance in FY20. The order book continues to grow at an impressive rate, up 18% from end-2020 with a strong 1.62x book-to-bill ratio for the period. We maintain our FY21 revenue forecast, in line with company guidance, which assumes no additional FX headwinds, but note that this could mean our FY22 revenue forecast is conservative. With acquisition synergies being realised faster than expected, we adjust our near-term margin assumptions, somewhat increasing our FY21/22e adjusted EBITDA forecasts. Our valuation increases to £706m or 1,445p/share from £683m or 1,400p/share.
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