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Last close As at 02/06/2023
GBP47.00
▲ 95.00 (2.06%)
Market capitalisation
GBP1,320m
Research: TMT
4imprint’s interims show revenue growth of 16% (all organic) and a further small tick up in underlying operating margin to 4.8% (H118: 4.7%). The brand promotion initiative, launched in H118, is delivering online traffic and conversion better than initial expectations. We have again lifted our FY19 revenue and EPS forecasts, by 4% and 3% respectively. For FY20e the EPS uplift is 5%. Management’s revenue target of $1bn by FY22e looks likely to be achieved ahead of schedule. The group has five-year average cash conversion of 103% and a cash-rich balance sheet and we regard the current share price as well underpinned, with further potential upside.
4imprint Group |
Self-promotion boost to strong organic growth |
Interim results |
Media |
31 July 2019 |
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 interims show revenue growth of 16% (all organic) and a further small tick up in underlying operating margin to 4.8% (H118: 4.7%). The brand promotion initiative, launched in H118, is delivering online traffic and conversion better than initial expectations. We have again lifted our FY19 revenue and EPS forecasts, by 4% and 3% respectively. For FY20e the EPS uplift is 5%. Management’s revenue target of $1bn by FY22e looks likely to be achieved ahead of schedule. The group has five-year average cash conversion of 103% and a cash-rich balance sheet and we regard the current share price as well underpinned, with further potential upside.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
627.5 |
42.5 |
107.7 |
58.1 |
32.0 |
1.7 |
12/18 |
738.4 |
46.4 |
132.3 |
70.0 |
26.0 |
2.0 |
12/19e |
845.0 |
54.0 |
150.7 |
82.5 |
22.8 |
2.4 |
12/20e |
940.0 |
60.1 |
167.8 |
92.5 |
20.5 |
2.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Growth from new and existing customers
Despite the premium growth (US market growth is estimated by management at 5.0%), the group’s current market share is around 3.0%, leaving plenty of scope to expand its reach further. The brand promotion initiative is successfully reaching the target audience, with new customer orders ahead by 8% year-on-year and existing customer orders up by 16%. Marketing yield was broadly flat, which is a good result given the step up in spend and the change in the mix. Average basket size is ticking up with the greater proportion of apparel, which also has a small impact on working capital. Our revised estimates assume some moderation in the pace of revenue growth, to 13% in H219 and 14% for FY20, with a small increase in operating margin, although within the basic premise that management drives the top line through managing the marketing spend towards a stable margin.
Cash-rich balance sheet
The extension to the Oshkosh distribution facility to meet the higher levels of throughput is nearing completion, with the group’s capex spend of around $4m in H119. The project budget was $5m. Management has flagged the potential requirement for more office space, and we will build this into our modelling as and when the plans take shape. Our current projection is for year-end net cash of $39.0m (was $38.1m), climbing to around $58m by the end of FY20e (was $55m).
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 and progressive dividend also single it out. A DCF on our updated numbers suggests a value of £26.01 (on conservative assumptions of a 9% WACC and 3% terminal growth), from £23.26 at the time of our last note, part lifted by sterling weakness. An 8% WACC assumption would generate a value of £31.31.
Further uplifts to forecasts on strong interims
We had lifted our FY19 revenue forecast by 2% at the time of the final results in March. By the time of the AGM statement in May, order intake was running 14% ahead of prior year and revenue was up by 16% for the first four months of the year, and this pace has been sustained through the subsequent two months. We have therefore now raised our full year revenue forecast to $845m from $812m. The FY19e EBITDA number also increases with the implementation of IFRS 16. At the pre-tax level, the increased depreciation/amortisation charge on the operating leases of $1.5m and an additional $0.1m of interest (prior year numbers are not restated) leads to a similar percentage uplift to the progression at the EBITDA level. We have also lifted our assumptions on the underlying interest, based on that achieved in the first half.
Exhibit 1: Changes to forecasts
Year end December |
Normalised EPS (c) |
PBT ($m) |
EBITDA ($m) |
||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2018 |
132.3 |
132.3 |
- |
46.4 |
46.4 |
- |
48.5 |
48.5 |
- |
2019e |
147.0 |
150.7 |
+3 |
52.6 |
54.0 |
+3 |
55.7 |
57.5 |
+3 |
2020e |
159.5 |
167.8 |
+5 |
57.4 |
60.1 |
+5 |
60.5 |
63.5 |
+5 |
Source: Company accounts, Edison Investment Research
We have also lifted our dividend projections, given that the interim dividend has been raised by 20%, on EPS up 21% in H119 year-on-year.
H119 results summary
The bridges to underlying operating profit for the period and prior year are shown below.
Exhibit 2: Summary H119 results
H119 ($m) |
H118 ($m) |
% change |
|
Revenue |
405.1 |
348.3 |
+16 |
Gross profit |
131.7 |
112.9 |
+17 |
Gross margin |
32.5% |
32.4% |
|
Marketing costs |
(79.2) |
(68.0) |
+16 |
As % revenue |
19.5% |
19.5% |
|
Selling costs |
(15.3) |
(13.6) |
+12 |
As % revenue |
3.8% |
3.9% |
|
Admin and central costs |
(17.2) |
(14.7) |
+17 |
As % revenue |
4.3% |
4.2% |
|
Share option related charges |
(0.5) |
(0.3) |
+59 |
Underlying operating profit |
19.4 |
16.3 |
+19 |
Underlying operating margin |
4.8% |
4.7% |
Source: Company accounts
The slight tick up in gross profit margin reflects the increasing proportion of apparel in the product mix. The only movements in costs of note are 1) the increased admin and central costs as the senior team was reinforced to support the growing business, and 2) selling costs, which increased at a slower rate than the top line.
Exhibit 3: Financial summary
$000s |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
627,518 |
738,418 |
845,000 |
940,000 |
Cost of Sales |
(422,299) |
(500,531) |
(569,846) |
(633,918) |
||
Gross Profit |
205,219 |
237,887 |
275,154 |
306,082 |
||
EBITDA |
|
|
45,092 |
48,507 |
57,529 |
63,473 |
Operating Profit (before amort. and except). |
42,580 |
45,862 |
53,335 |
59,279 |
||
Intangible Amortisation |
(464) |
0 |
0 |
0 |
||
Operating Profit (after amort. and before except.) |
42,116 |
45,862 |
53,335 |
59,279 |
||
Operating Profit |
41,284 |
44,322 |
52,321 |
58,279 |
||
Net Interest |
(122) |
227 |
692 |
870 |
||
Net pension finance charge |
(503) |
(403) |
(406) |
(406) |
||
Profit Before Tax (norm) |
|
|
42,458 |
46,089 |
54,027 |
60,149 |
Profit Before Tax (IFRS) |
|
|
40,659 |
44,146 |
52,607 |
58,743 |
Tax |
(11,734) |
(8,952) |
(11,573) |
(12,923) |
||
Profit After Tax (norm) |
30,724 |
37,453 |
42,853 |
47,625 |
||
Profit After Tax (IFRS) |
28,925 |
35,194 |
41,033 |
45,819 |
||
Discontinued businesses |
0 |
0 |
0 |
0 |
||
Net income (norm) |
|
|
30,291 |
37,511 |
42,453 |
47,228 |
Net income (IFRS) |
|
|
28,925 |
35,194 |
41,033 |
45,819 |
Average Number of Shares Outstanding (m) |
28.0 |
28.0 |
28.1 |
28.1 |
||
EPS - normalised (c) |
|
|
107.7 |
133.5 |
150.7 |
167.8 |
EPS - (IFRS) (c) |
|
|
103.1 |
125.6 |
146.1 |
163.2 |
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 |
6.8 |
||
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 |
105,452 |
132,071 |
Stocks |
7,940 |
9,878 |
11,530 |
13,083 |
||
Debtors |
44,124 |
46,872 |
53,637 |
59,668 |
||
Cash |
30,767 |
27,484 |
40,285 |
59,321 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(49,024) |
(50,752) |
(59,362) |
(65,892) |
Creditors |
(48,878) |
(50,752) |
(58,077) |
(64,607) |
||
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 |
64,210 |
86,705 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
44,576 |
45,583 |
59,200 |
64,000 |
Net Interest |
(122) |
227 |
692 |
870 |
||
Tax |
(12,751) |
(7,844) |
(11,974) |
(13,321) |
||
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) |
11,583 |
19,036 |
||
Opening net debt/(cash) |
|
|
(21,683) |
(30,767) |
(27,484) |
(39,000) |
Net impact of disposals etc |
0 |
0 |
0 |
0 |
||
Other |
619 |
(1,013) |
(67) |
0 |
||
Closing net debt/(cash) |
|
|
(30,767) |
(27,484) |
(39,000) |
(58,036) |
Source: Company accounts, Edison Investment Research
|
|
Research: Healthcare
RedHill’s Q219 results released on 23 July 2019 described steady progress across its pipeline, with TALICIA the centre of attention as the PDUFA date (2 November 2019) approaches. Based on the data released, we assign a high likelihood of FDA approval due to the clean dataset from the Phase III trials. From a commercial perspective, RedHill also appears to be ready with a US team in operation since mid-2017. Although potential approval and launch of TALICIA will dominate H219 newsflow, other notable R&D developments include initiation of the pivotal Phase III trial with RHB-204 in NTM infections and a meeting with the FDA to discuss further development of RHB-104 in Crohn’s disease. Our valuation is virtually unchanged.
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