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Research: TMT
4imprint’s FY20 revenues were, as indicated at January’s update, slightly ahead of our previous forecast after more positive Q4 trading. Indications are that revenues are continuing to regain ground as the US economy builds back. In January and February, quieter trading months, order counts were at 65% of FY19 levels, with March (to date) showing further progress, allowing us to move FY21 estimates ahead. The group’s considerable cash resource has enabled it to trade through the shutdowns while keeping its infrastructure and people in place. The speed of its financial recovery will inevitably reflect the timing and scale of the rebound in US corporate health.
4imprint Group |
Steady rebuild as economy reopens |
Final results |
Media |
16 March 2021 |
Share price performance
Business description
Next events
Analyst
4imprint Group is a research client of Edison Investment Research Limited |
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4imprint’s FY20 revenues were, as indicated at January’s update, slightly ahead of our previous forecast after more positive Q4 trading. Indications are that revenues are continuing to regain ground as the US economy builds back. In January and February, quieter trading months, order counts were at 65% of FY19 levels, with March (to date) showing further progress, allowing us to move FY21 estimates ahead. The group’s considerable cash resource has enabled it to trade through the shutdowns while keeping its infrastructure and people in place. The speed of its financial recovery will inevitably reflect the timing and scale of the rebound in US corporate health.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
860.8 |
55.6 |
157.2 |
84.0 |
23.6 |
2.3 |
12/20 |
560.0 |
5.0 |
13.8 |
0.0 |
269.0 |
N/A |
12/21e |
645.0 |
17.9 |
49.5 |
25.0 |
75.0 |
0.7 |
12/22e |
725.0 |
25.8 |
71.7 |
35.0 |
51.8 |
0.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Balance sheet resilience a key strength
A year-on-year decrease in revenues of 35% translated to a 92% decrease in underlying PBT. Considering that in the early weeks of the lockdowns, order counts fell to 20% of prior year, this is a much better outturn than had been feared earlier. The strong balance sheet enabled the group to weather the conditions without needing to lay off staff or change its purpose (some competitors switched their activities to the distribution of PPE). It has also worked hard to maintain strong relationships with both customers and suppliers, which should stand it in good stead as conditions improve. Net cash at the year-end was $39.8m, despite the group paying a one-off pension contribution of $9.1m, as previously agreed with the trustees, in addition to the regular plan payments.
Marketing investment is the key variable
We expect that there will some recovery in gross margin in FY21, as labour costs are increasingly absorbed as revenues rebuild. The key variable is the marketing cost, which in more normal operating circumstances is flexed to maintain a broadly stable operating margin. The focus through the pandemic to date has been on supporting brand awareness, with TV campaigns a core element of the mix, and with reduced spend on catalogues. We believe this stance should help drive market share gains in the upturn.
Valuation: Premium rating maintained
With continuing uncertainty over the speed of the continuing recovery in the US economy, our earnings forecasts remain more tentative than usual. However, 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 c 45.8x, compared to marketing services stocks on 17.1x, but we anticipate further recovery in future years that will narrow this valuation gap.
FY20: An atypical year
As indicated at the year-end trading update, revenues were firmer than expected in Q4, delivering a full year results ahead of our previous expectations. This is likely to have been due to corporates gifting their own employees to mark their efforts, as well as continuing to send items to customers.
|
Exhibit 1: FY20 revenue to profit waterfall |
|
|
Source: Company accounts, Edison Investment Research |
Gross profit margin for the year of 28.2% was lower than usual (the average level across FY11–19 was 32.9%). This largest factor contributing to this was irrecoverable labour costs in areas such as embroidery, the warehouse and creative, with staff numbers maintained through the lockdowns. It also reflects higher customer volume discounts on higher average order values (itself a product of a greater proportion of apparel in the mix), a shift in mix and some impact from tariffs and lower supplier rebates stemming from reduced volumes.
We have built some amelioration into our FY21 numbers as volumes continue their rebound, with gross margin projected to lift to 29.2% and further to 30.9% in FY22.
As usual, marketing costs are the most substantial element of the operational costs, but our view is that they should be characterised as an investment in driving future revenues. Marketing spend was 40% lower than prior year, with the mix managed to optimise its return. There is little point in printing catalogues to sit on empty desks or sending sample boxes to deserted offices. However, there is a strong argument for running brand awareness campaigns that will help build market share when spending on promotional products resumes its growth. Revenue per marketing dollar (a central KPI for the business) was $6.03 in FY20, up from $5.58 in FY19.
Revisions to forecasts
Management has indicated that the year has started with order levels running at around 65% of those achieved in FY19 (FY20 was so unusual it does not make for a useful comparator). March to date is running at 70% of FY19 equivalent. Our full year revenue forecasts are predicated on the percentage shortfall against FY19 figures diminishing as the year progresses, although not totally recouping those levels. The prospects for resumption of in-person trade fairs, conferences and conventions are still uncertain.
For FY22, we have built in modest growth of 7.5%, although visibility at that distance is negligible.
Exhibit 2: Summary revisions to forecasts
Revenue ($m) |
EBITDA ($m) |
EPS (c) |
|||||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|||
2020* |
535 |
560 |
+5 |
3.9 |
8.4 |
+115 |
0.3 |
13.8 |
+4,500 |
||
2021e |
600 |
645 |
+8 |
18.8 |
21.6 |
+15 |
40.6 |
49.5 |
+22 |
||
2022e |
- |
725 |
N/A |
- |
29.6 |
N/A |
- |
71.7 |
N/A |
||
Source: Company accounts, Edison Investment Research. Note: *For 2020, ‘new’ refers to actual figure.
Balance sheet remains strong
4imprint closed the year with cash of $39.8m, compared with $41.1m at end FY19. Leasehold liabilities of $13.2m are the only ‘debt’. This strong funding position was despite the obvious trading headwinds and after the payment in H120 of a special pension contribution of $9.14m agreed with the trustees before the onset of the pandemic. Capital spend in the year was $3.8m – a reduced level to conserve cash.
Given the continuing uncertainties, management wants to retain the maximum amount of flexibility regarding cash resource. It is therefore not recommending the payment of a dividend for FY20, having previously cancelled the FY19 final payment. Although there is no commitment to do so, our modelling assumes that payments are resumed in FY21 and we have suggested a level that would be approximately twice covered by earnings.
Exhibit 3: Financial summary
$000s |
2018 |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
738,418 |
860,844 |
560,040 |
645,000 |
725,000 |
Cost of Sales |
(500,531) |
(585,543) |
(402,100) |
(456,840) |
(501,157) |
||
Gross Profit |
237,887 |
275,301 |
157,940 |
188,160 |
223,843 |
||
EBITDA |
|
|
48,507 |
59,144 |
8,417 |
21,645 |
29,624 |
Operating Profit (before amort. and except). |
|
|
45,862 |
54,860 |
5,017 |
17,845 |
25,824 |
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit (after amort. and before except.) |
|
|
45,862 |
54,860 |
5,017 |
17,845 |
25,824 |
Exceptionals |
(721) |
0 |
0 |
0 |
0 |
||
Impairment |
0 |
0 |
0 |
0 |
0 |
||
DB Pension administration charges |
(316) |
(312) |
(420) |
(420) |
(420) |
||
Pensions and share options |
(819) |
(928) |
(625) |
(800) |
(800) |
||
Operating Profit |
44,322 |
53,620 |
3,972 |
16,625 |
24,604 |
||
Net Interest |
227 |
751 |
(25) |
25 |
25 |
||
Net pension finance charge |
(403) |
(378) |
(104) |
(104) |
(104) |
||
Profit Before Tax (norm) |
|
|
46,089 |
55,611 |
4,992 |
17,870 |
25,849 |
Profit Before Tax (IFRS) |
|
|
44,146 |
53,993 |
3,843 |
16,546 |
24,525 |
Tax |
(8,952) |
(11,276) |
(753) |
(3,640) |
(5,428) |
||
Profit After Tax (norm) |
36,734 |
44,335 |
4,239 |
14,230 |
20,421 |
||
Profit After Tax (IFRS) |
35,194 |
42,717 |
3,090 |
12,906 |
19,097 |
||
Discontinued businesses |
(100) |
0 |
0 |
0 |
0 |
||
Net income (norm) |
|
|
36,360 |
44,203 |
3,894 |
13,938 |
20,162 |
Net income (IFRS) |
|
|
35,094 |
42,717 |
3,090 |
12,906 |
19,097 |
Average Number of Shares Outstanding (m) |
28.0 |
28.0 |
28.0 |
28.0 |
28.0 |
||
EPS - normalised (c) |
|
|
129.4 |
157.2 |
13.8 |
49.5 |
71.7 |
EPS - (IFRS) (c) |
|
|
125.6 |
152.4 |
11.0 |
46.0 |
68.1 |
Dividend per share (c) |
70.0 |
84.0 |
0.0 |
25.0 |
35.0 |
||
Gross Margin (%) |
32.2 |
32.0 |
28.2 |
29.2 |
30.9 |
||
EBITDA Margin (%) |
6.6 |
6.9 |
1.5 |
3.4 |
4.1 |
||
Operating Margin (before GW and except.) (%) |
6.2 |
6.4 |
0.9 |
2.8 |
3.6 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
25,732 |
31,844 |
43,269 |
43,169 |
43,069 |
Intangible Assets |
0 |
0 |
0 |
0 |
0 |
||
Other intangible assets |
1,084 |
1,152 |
1,100 |
1,100 |
1,100 |
||
Tangible Assets |
19,012 |
24,369 |
24,832 |
24,732 |
24,632 |
||
Right of use assets |
0 |
1,985 |
13,065 |
13,065 |
13,065 |
||
Deferred tax assets |
5,636 |
4,338 |
4,272 |
4,272 |
4,272 |
||
Current Assets |
|
|
84,234 |
105,631 |
89,812 |
102,638 |
115,387 |
Stocks |
9,878 |
11,456 |
11,271 |
12,981 |
14,591 |
||
Debtors |
46,872 |
53,039 |
38,775 |
44,657 |
50,196 |
||
Cash |
27,484 |
41,136 |
39,766 |
45,000 |
50,600 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(50,752) |
(60,839) |
(51,118) |
(58,703) |
(65,846) |
Creditors |
(50,752) |
(59,209) |
(50,001) |
(57,586) |
(64,729) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
0 |
(1,630) |
(1,117) |
(1,117) |
(1,117) |
||
Long Term Liabilities |
|
|
(15,947) |
(13,688) |
(16,592) |
(12,467) |
(12,467) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
0 |
(415) |
(12,089) |
(12,089) |
(12,089) |
||
Other long term liabilities (including pension) |
(15,947) |
(13,273) |
(4,503) |
(378) |
(378) |
||
Net Assets |
|
|
43,267 |
62,948 |
65,371 |
74,637 |
80,143 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
45,583 |
56,248 |
7,322 |
22,900 |
30,700 |
Net Interest |
227 |
706 |
(13) |
25 |
25 |
||
Tax |
(7,844) |
(10,318) |
(507) |
(3,931) |
(5,687) |
||
Capex |
(2,855) |
(8,178) |
(3,724) |
(3,700) |
(3,700) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Pension contributions |
(3,932) |
(3,593) |
(4,138) |
(3,900) |
(3,900) |
||
Financing |
(465) |
(2,567) |
941 |
(2,200) |
(2,200) |
||
Dividends |
(32,984) |
(20,659) |
0 |
(2,317) |
(7,947) |
||
Other |
0 |
(1,687) |
(1,418) |
(1,622) |
(1,622) |
||
Net Cash Flow |
(2,270) |
9,952 |
(1,537) |
5,255 |
5,670 |
||
Opening net debt/(cash) |
|
|
(30,767) |
(27,484) |
(41,136) |
(39,766) |
(45,000) |
Net impact of disposals etc |
0 |
3,638 |
0 |
0 |
0 |
||
Other |
(1,013) |
62 |
167 |
(21) |
(70) |
||
Closing net debt/(cash) |
|
|
(27,484) |
(41,136) |
(39,766) |
(45,000) |
(50,600) |
Source: Company accounts, Edison Investment Research
|
|
Research: TMT
mic’s reverse takeover target, Pyramid Computer, reported 5% revenue growth in FY20 despite the coronavirus pandemic, though with lower EBIT. The outlook for FY21 is for modest growth in revenues and EBIT due to the current economic conditions. Beyond FY21, we expect a return to double-digit growth, thereby benefiting from the positive market conditions for point-of-sale systems (POS). mic is making good progress with the acquisition of Pyramid with only one more hurdle, namely an equity issue of €10.9m, which mic expects to be finalised in May.
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