4imprint Group — Strong trading recovery

4imprint Group (LSE: FOUR)

Last close As at 12/12/2024

GBP50.20

0.00 (0.00%)

Market capitalisation

GBP1,415m

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Research: TMT

4imprint Group — Strong trading recovery

4imprint’s FY21 results show a good recovery in orders and revenues, with momentum building over H221. Revenues and profits were as flagged in January’s trading update and were in line with our recent Outlook note. Our FY22 and FY23 forecasts are broadly unchanged, with FY22 revenues set to outstrip those of FY19 as the US economy rebuilds. A note of caution remains on the speed of margin recovery, reflecting lingering supply chain issues and inflationary cost pressures, but this is built into the numbers. 4imprint is a high-quality business in a large and growing market, underpinned by marketing expertise and a strong balance sheet.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Strong trading recovery

FY21 results

Media

16 March 2022

Price

2,790p

Market cap

£784m

$1.35/£

Net cash ($m) at 1 January 2022

41.6

Shares in issue

28.1m

Free float

97.6%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.5

1.1

3.4

Rel (local)

8.0

3.0

(6.6)

52-week high/low

3,170p

2,250p

Business description

4imprint Group is a leading direct marketer of promotional products in the United States, Canada, the UK and Ireland. In FY21, 98% of revenues were generated in the United States and Canada.

Next events

AGM

mid-May 2022

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

4imprint Group is a research client of Edison Investment Research Limited

4imprint’s FY21 results show a good recovery in orders and revenues, with momentum building over H221. Revenues and profits were as flagged in January’s trading update and were in line with our recent Outlook note. Our FY22 and FY23 forecasts are broadly unchanged, with FY22 revenues set to outstrip those of FY19 as the US economy rebuilds. A note of caution remains on the speed of margin recovery, reflecting lingering supply chain issues and inflationary cost pressures, but this is built into the numbers. 4imprint is a high-quality business in a large and growing market, underpinned by marketing expertise and a strong balance sheet.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/20

560.0

3.8

11.0

0.0

N/A

N/A

12/21

787.3

30.2

80.3

45.0

46.9

1.2

12/22e

900.0

40.2

108.7

60.0

34.7

1.6

12/23e

1,000.0

51.1

138.1

80.0

27.7

2.1

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Marketing mix driving growth

Our recent Outlook note described the operational and financial dynamics of the business in detail and the messaging with these results is consistent; the market opportunities are substantial (industry body ASI estimates an FY21 market value of $23.2bn); management of the marketing mix is key to driving new and repeat custom; and careful management of cash gives resilience and flexibility. Customer orders at 1.429m were back to 90% of FY19 levels and new customers acquired at 89%, with retention rates in line with historical levels. Revenue per marketing dollar of $6.17 was up from $6.03 in FY20 (average FY12–21: $5.81), implying that the increased proportion of spend allocated to brand awareness has been accretive.

Cash resource rebuilding

Cash at the year-end was $41.6m (the group has no bank debt). Operating cash conversion was lower than historically at 63% (10-year average of 131%), after working capital absorption of $13.8m. This reflects the global and local supply chain issues in Q421 that required greater levels of inventory and higher accrued revenue for orders in process at the year-end. Management anticipates this reversing in FY22 and based on this confidence, we now expect a cash balance of $56.0m at the year-end (was $44.3m), despite higher forecast capex of $6.5m (including $2.0m for a solar energy project) and a step up in the dividend payment.

Valuation: Premium reflects high-quality growth

4imprint benefits from its scale, low fixed-cost base and limited capital requirements, attractive cash flow characteristics and cash positive balance sheet, all of which justify its premium rating. A DCF suggests a price of £34.01/share, while it trades on an FY22e EV/EBITDA of 22.1x, versus marketing services stocks on 12.0x. We expect continuing good growth will narrow this valuation gap.

Exhibit 1: Financial summary

$000s

2019

2020

2021

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

860,844

560,040

787,322

900,000

1,000,000

Cost of Sales

(585,543)

(402,100)

(561,306)

(639,000)

(710,000)

Gross Profit

275,301

157,940

226,016

261,000

290,000

EBITDA

 

 

57,904

8,905

35,660

45,900

56,860

Operating profit (before amort. and excepts.)

 

 

53,620

3,972

30,646

40,500

51,460

Intangible Amortisation

0

0

0

0

0

Operating profit (before amort. and excepts.)

 

 

53,620

3,972

30,646

40,500

51,460

Exceptionals

0

0

0

0

0

Impairment

0

0

0

0

0

Operating Profit

53,620

3,972

30,646

40,500

51,460

Net Interest

373

(129)

(417)

(350)

(350)

Profit Before Tax (norm)

 

 

53,993

3,843

30,229

40,150

51,110

Profit Before Tax (IFRS)

 

 

53,993

3,843

30,229

40,150

51,110

Tax

(11,276)

(753)

(7,643)

(10,037)

(12,778)

Profit After Tax (norm)

42,717

3,090

22,586

30,112

38,333

Profit After Tax (IFRS)

42,717

3,090

22,586

30,112

38,333

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

42,717

3,090

22,586

30,514

38,333

Net income (IFRS)

 

 

42,717

3,090

22,586

30,112

38,333

Average Number of Shares Outstanding (m)

28.0

28.0

28.1

28.1

28.1

EPS - normalised and fully diluted (c)

 

 

152.4

11.0

80.3

108.7

138.1

EPS - (IFRS) (c)

 

 

152.4

11.0

80.2

107.3

136.3

Dividend per share (c)

84.0

0.0

45.0

60.0

80.0

Gross Margin (%)

32.0

28.2

28.7

29.0

29.0

EBITDA Margin (%)

6.7

1.6

4.5

5.1

5.7

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

6.2

0.7

3.9

4.5

5.1

BALANCE SHEET

Fixed Assets

 

 

31,844

43,269

38,037

37,797

35,557

Intangible Assets

0

0

0

0

0

Other intangible assets

1,152

1,100

1,045

1,045

1,045

Tangible Assets

24,369

24,832

24,667

25,767

24,867

Right of use assets

1,985

13,065

11,725

10,385

9,045

Deferred tax assets

4,338

4,272

600

600

600

Current Assets

 

 

105,631

89,812

127,771

147,038

171,934

Stocks

11,456

11,271

20,559

21,739

24,396

Debtors

53,039

38,775

63,589

67,238

75,456

Cash

41,136

39,766

41,589

56,027

70,048

Other

0

0

2,034

2,034

2,034

Current Liabilities

 

 

(60,839)

(51,118)

(73,027)

(85,368)

(94,725)

Creditors

(59,209)

(50,001)

(71,877)

(84,218)

(93,575)

Short term borrowings

0

0

0

0

0

Lease liabilities

(1,630)

(1,117)

(1,150)

(1,150)

(1,150)

Long Term Liabilities

 

 

(13,688)

(16,592)

(11,789)

(10,589)

(9,506)

Long term borrowings

0

0

0

0

0

Lease liabilities

(415)

(12,089)

(10,939)

(9,739)

(8,539)

Other long term liabilities

(13,273)

(4,503)

(850)

(850)

(967)

Net Assets

 

 

62,948

65,371

80,992

88,878

103,259

CASH FLOW

Operating Cash Flow

 

 

59,841

16,462

22,846

47,250

53,750

Net Interest

751

(13)

(417)

(350)

(350)

Tax

(10,318)

(507)

(6,414)

(6,036)

(10,278)

Capex

(8,178)

(3,724)

(3,465)

(6,500)

(4,500)

Acquisitions/disposals

0

0

0

0

0

Pension contributions

(3,593)

(13,278)

(4,589)

(4,000)

(4,000)

Financing

(2,567)

941

(843)

(800)

(800)

Dividends

(20,659)

0

(4,134)

(14,026)

(18,701)

Other

(1,687)

(1,418)

(1,109)

(1,100)

(1,100)

Net Cash Flow

13,590

(1,537)

1,875

14,438

14,021

Opening net debt/(cash)

 

 

(27,484)

(41,136)

(39,766)

(41,590)

(56,027)

Net impact of disposals etc

0

0

0

0

0

Other

62

167

(52)

0

0

Closing net debt/(cash)

 

 

(41,136)

(39,766)

(41,590)

(56,027)

(70,048)

Source: company accounts, Edison Investment Research. Note: Historical figures restated to reflect expensing of share option and defined benefit administration charges.


General disclaimer and copyright

This report has been commissioned by 4imprint Group and prepared and issued by Edison, in consideration of a fee payable by 4imprint Group. 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 2022 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

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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.

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United States

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by 4imprint Group and prepared and issued by Edison, in consideration of a fee payable by 4imprint Group. 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 2022 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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