4imprint Group — Strong order intake and upgrades

4imprint Group (LSE: FOUR)

Last close As at 18/06/2024

GBP58.00

60.00 (1.05%)

Market capitalisation

GBP1,635m

More on this equity

Research: TMT

4imprint Group — Strong order intake and upgrades

Ahead of 4imprint’s interim results, scheduled for 9 August, the company has issued a half-year trading update indicating performance running well ahead of market expectations for the full year. This is in terms of volumes, gross margin, profitability and cash. The May AGM statement had also been very positive, but there was greater uncertainty at that time whether the buoyant conditions would persist and we held our forecasts. We have now lifted our revenue and earnings estimates for FY23 and FY24 and adjusted for the pension buy-in, announced in July. 4imprint is clearly outperforming its market and has plenty of scope to continue to build (profitable) share.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint

Strong order intake and upgrades

Trading update

Media

1 August 2023

Price

4,435p

Market cap

£1,249m

US$1.28: £1

Net cash and short-term deposits ($m) at 31 December 2022

86.8

Shares in issue

28.2m

Free float

97.6%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.5)

(1.7)

39.0

Rel (local)

(9.8)

0.4

36.0

52-week high/low

5,510p

3,124p

Business description

4imprint Group is a leading direct marketer of promotional products in the United States, Canada, the UK and Ireland. In FY22, 98% of revenues were generated in the United States and Canada.

Next events

Interim results

9 August

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

4imprint is a research client of Edison Investment Research Limited

Ahead of 4imprint’s interim results, scheduled for 9 August, the company has issued a half-year trading update indicating performance running well ahead of market expectations for the full year. This is in terms of volumes, gross margin, profitability and cash. The May AGM statement had also been very positive, but there was greater uncertainty at that time whether the buoyant conditions would persist and we held our forecasts. We have now lifted our revenue and earnings estimates for FY23 and FY24 and adjusted for the pension buy-in, announced in July. 4imprint is clearly outperforming its market and has plenty of scope to continue to build (profitable) share.

Year
end

Revenue
($m)

PBT*
($m)

EPS*
(c)

DPS**
(c)

P/E
(x)

Yield
(%)

12/21

787

30.2

80.3

45.0

55.2

1.0

12/22

1,140

103.7

285.0

160.0

15.6

3.6

12/23e

1,301

125.4

333.6

185.0

13.3

4.2

12/24e

1,440

140.3

377.5

200.0

11.7

4.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items. **Excluding special dividends.

Strong H1 supports upgrades

We have raised our FY23 revenue estimate by 2% from $1.275bn to $1.302bn (revised guidance is ‘slightly above $1.3bn’) and our pre-tax profit estimate from $110.7m to $125.4m, up 13%, with guidance lifted to ‘not less than $125m’. This larger uplift in profitability stems from the group achieving a higher gross margin than we had anticipated and from the continuing uplift in the revenue earned per marketing dollar, which has been a strong contributory feature over recent periods. More detail on trading and the trajectory for that important metric is likely with the imminent interim results. Changes to our FY24 numbers flow through from the changes made to the current year.

Pension buy-in reduces potential volatility

The legacy defined benefit pension position has been carefully managed over the last few years to reduce the potential risk and with an eye to getting the funding to a position where a buy-in could be carried out. This was achieved in July, via a bulk annuity policy with fair value matching the insured liabilities. This eliminates risks from inflation, interest rates and longevity and removes volatility from 4imprint’s balance sheet. Management is accelerating most of the previously agreed schedule of recovery contributions through to September 2024 with a cash top-up of around $4m, which was paid in July 2023 and is now reflected in our modelling.

Valuation: DCF shows good upside potential

The share price has increased by 12% year-to-date, building on a strong performance from the middle of 2022. A discounted cash flow (weighted average cost of capital of 8.0%; terminal growth of 3%, as before) generates an implied value of £67.30, up from the £65.64 at the time of our March update and still well ahead of the current share price.

Exhibit 1: Financial summary

$000s

2020

2021

2022

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

560,040

787,322

1,140,286

1,301,265

1,440,149

Cost of Sales

(402,100)

(561,306)

(818,670)

(930,319)

(1,029,620)

Gross Profit

157,940

226,016

321,616

370,946

410,529

EBITDA

 

 

8,905

35,660

108,428

129,907

145,000

Operating profit (before amort. and excepts.)

 

 

3,972

30,646

102,902

123,375

138,250

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

3,972

30,646

102,902

123,375

138,250

Net Interest

(129)

(417)

804

2,000

2,000

Profit Before Tax (norm)

 

 

3,843

30,229

103,706

125,375

140,250

Profit Before Tax (IFRS)

 

 

3,843

30,229

103,706

125,375

140,250

Tax

(753)

(7,643)

(23,563)

(31,344)

(33,660)

Profit After Tax (norm)

3,090

22,586

80,143

94,031

106,590

Profit After Tax (IFRS)

3,090

22,586

80,143

94,031

106,590

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

3,090

22,586

80,143

94,031

106,590

Net income (IFRS)

 

 

3,090

22,586

80,143

94,031

106,590

Average Number of Shares Outstanding (m)

28.0

28.1

28.1

28.1

28.2

EPS - normalised fully diluted (c)

 

 

11.0

80.3

285.0

333.6

377.5

EPS - (IFRS) (c)

 

 

11.0

80.5

285.6

334.4

378.3

Dividend per share (c)

0.0

45.0

160.0

185.0

200.0

Special dividend per share (c)

0.0

0.0

200.0

0.0

0.0

Gross Margin (%)

28.2

28.7

28.2

28.5

28.5

EBITDA Margin (%)

1.6

4.5

9.5

10.0

10.1

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

0.7

3.9

9.0

9.5

9.6

BALANCE SHEET

Fixed Assets

 

 

43,269

40,011

47,940

52,005

50,915

Intangible Assets

0

0

1,010

1,010

1,010

Other intangible assets

1,100

1,045

957

957

957

Tangible Assets

24,832

24,667

29,255

31,023

31,273

Right of use assets

13,065

11,725

13,103

11,400

10,060

Deferred tax assets

4,272

600

2,381

2,381

2,381

Retirement benefit asset

 

 

0

1,974

1,234

5,234

5,234

Current Assets

 

 

89,812

127,771

192,353

188,479

248,923

Stocks

11,271

20,559

18,090

21,160

21,662

Debtors

38,775

63,589

87,511

97,369

107,761

Cash and short-term deposits

39,766

41,589

86,752

69,950

119,500

Other

0

2,034

0

0

0

Current Liabilities

 

 

(51,118)

(73,027)

(87,401)

(95,744)

(105,525)

Creditors

(50,001)

(71,877)

(85,966)

(94,309)

(104,375)

Short term borrowings

0

0

0

0

0

Lease liabilities

(1,117)

(1,150)

(1,435)

(1,435)

(1,150)

Long Term Liabilities

 

 

(16,592)

(11,789)

(12,672)

(11,722)

(10,522)

Long term borrowings

0

0

0

0

0

Lease liabilities

(12,089)

(10,939)

(12,315)

(11,365)

(10,165)

Other long term liabilities

(4,503)

(850)

(357)

(357)

(357)

Net Assets

 

 

65,371

82,966

140,220

133,018

183,791

CASH FLOW

Operating Cash Flow

 

 

16,462

22,846

101,317

132,000

141,500

Net Interest

(13)

(409)

699

2,000

2,000

Tax

(507)

(6,414)

(20,755)

(28,844)

(31,160)

Capex

(3,724)

(3,465)

(8,011)

(8,300)

(7,000)

Acquisitions/disposals

0

0

(1,700)

0

0

Pension contributions

(13,278)

(4,589)

(4,367)

(8,000)

0

Financing

941

(843)

(866)

(900)

(900)

Dividends

0

(4,134)

(18,722)

(103,560)

(53,679)

Other/ Capital portion of lease repayments

(1,418)

(1,117)

(2,432)

(1,200)

(1,200)

Net Cash Flow

(1,537)

1,875

45,163

(16,804)

49,561

Opening net debt/(cash)

 

 

(41,136)

(39,766)

(41,589)

(86,752)

(69,950)

Net impact of disposals etc

0

0

0

0

0

Other

167

(53)

0

2

(12)

Closing net debt/(cash)

 

 

(39,766)

(41,589)

(86,752)

(69,950)

(119,500)

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by 4imprint and prepared and issued by Edison, in consideration of a fee payable by 4imprint. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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United Kingdom

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by 4imprint and prepared and issued by Edison, in consideration of a fee payable by 4imprint. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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