4imprint Group — Strong Q4, US tax change gains

4imprint Group (LSE: FOUR)

Last close As at 28/03/2024

GBP63.40

60.00 (0.96%)

Market capitalisation

GBP1,770m

More on this equity

Research: TMT

4imprint Group — Strong Q4, US tax change gains

A continued strong performance in Q417 delivered 12% revenue growth in FY17 vs FY16, a shade ahead of our previous forecast. We see good top-line momentum into FY18e as the group takes further share in its large and fragmented market, benefiting from its targeted marketing. US taxation reforms will kick in for FY18 and our EPS forecast is lifted by 10%. Cash resource of $30.7m at end FY17 allows for an increased dividend with plenty of scope for additional investment as the business continues to scale. Our new FY19e numbers show further good earnings progress, with the valuation rating coming in to more attractive levels.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

4imprint Group

Strong Q4, US tax change gains

Trading update

Media

17 January 2018

Price

1,980p

Market cap

£556m

£:$1.35

Net cash* ($m) at 31 December 2017 *Unaudited

30.7

Shares in issue

28.1m

Free float

91.9

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.3

3.2

5.6

Rel (local)

5.5

0.1

(1.7)

52-week high/low

2020.0p

1550.0p

Business description

4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. 97% of 2016 revenues were generated in the US and Canada.

Next events

Full year results

March 2018

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

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

A continued strong performance in Q417 delivered 12% revenue growth in FY17 vs FY16, a shade ahead of our previous forecast. We see good top-line momentum into FY18e as the group takes further share in its large and fragmented market, benefiting from its targeted marketing. US taxation reforms will kick in for FY18 and our EPS forecast is lifted by 10%. Cash resource of $30.7m at end FY17 allows for an increased dividend with plenty of scope for additional investment as the business continues to scale. Our new FY19e numbers show further good earnings progress, with the valuation rating coming in to more attractive levels.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

558.2

38.4

98.7

52.5

27.1

2.0

12/17e

627.5

42.2

105.1

57.5

25.4

2.2

12/18e

681.0

46.1

126.3

64.0

21.2

2.4

12/19e

738.0

50.0

135.8

70.0

19.7

2.6

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

Marketing and data-led growth

4imprint is first and foremost a marketing business and it has been at the forefront of its sector in using data to improve its targeting and content. The business model remains to fuel growth through investing in marketing, while keeping margins broadly stable (EBITDA margin is between 7.1% and 7.3% FY14-19e). FY17 marketing spend was more phased to H2 than usual and the benefit of this should continue to accrue in H118. The underlying market, estimated at $25bn in North America, remains highly fragmented, giving plenty of scope for further expansion.

Beneficial tax changes

4imprint generates around 97% of its revenues (and operating profits) in the US and the changes to US corporate taxation are positive for the group. We were previously using a 29% estimated FY18 tax charge, which is now likely to be in the “low 20s” percent. Greater clarity will be possible by the time of the prelims in March. We have now assumed an effective rate of 22%. Our FY18 EPS forecast moves from 114.8p to 126.3p, an increase of 10%. There will also be a boost to the cash flow from the lower taxation charge and our end-2018 anticipated net cash lifts from $40.5m to $43.0m. We initiate forecasts for FY19, albeit that these are inevitably tentative at this stage. Our revenue estimate is for an 8.4% uplift on the prior year, with EPS growth of 7.5% and a continuing build in net cash to over $58.0m.

Valuation: Strong earnings growth record

4imprint continues to trade at a premium to the UK small/mid-cap marketing service companies (trading on FY17e EV/EBITDA of 8.2x and a P/E of 11.9x). This reflects its differentiated and focused business model, and consistent record of strong earnings growth (26% EPS CAGR FY11-19e, 12% EPS CAGR FY15-19e). It has a cash-rich balance sheet and a growing dividend stream, underpinning the share price.

Exhibit 1: Financial summary

$000s

2015

2016

2017e

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

497,219

558,223

627,485

681,000

738,000

Cost of Sales

(334,622)

(374,137)

(423,889)

(458,311)

(496,671)

Gross Profit

162,598

184,087

203,596

222,689

241,328

EBITDA

 

 

35,478

40,766

45,358

49,300

53,100

Operating Profit (before amort. and except).

33,519

38,377

42,160

46,100

49,900

Operating Profit

31,963

34,696

40,660

45,000

48,800

Net Interest

30

(24)

40

45

50

Net pension finance charge

(836)

(521)

(521)

(521)

(521)

Profit Before Tax (norm)

 

 

33,549

38,353

42,200

46,145

49,950

Profit Before Tax (FRS 3)

 

 

31,157

34,151

40,179

44,524

48,329

Tax

(8,462)

(9,672)

(12,013)

(10,241)

(11,357)

Profit After Tax (norm)

25,087

28,681

30,187

35,905

38,593

Profit After Tax (FRS 3)

22,695

24,479

28,166

34,284

36,972

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

24,587

27,773

29,582

35,532

38,212

Net income (IFRS)

 

 

22,695

24,479

28,164

34,284

36,972

Average Number of Shares Outstanding (m)

27.9

28.1

28.0

28.0

28.0

EPS - normalised (c)

 

 

87.5

98.7

105.1

126.3

135.8

EPS - (IFRS) (c)

 

 

81.3

87.3

100.4

122.3

131.9

Dividend per share (c)

38.9

52.5

57.5

64.0

70.0

Gross Margin (%)

32.7

33.0

32.4

32.7

32.7

EBITDA Margin (%)

7.1

7.3

7.2

7.2

7.2

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

6.7

6.9

6.7

6.8

6.8

BALANCE SHEET

Fixed Assets

 

 

23,753

25,050

25,550

26,050

26,550

Intangible Assets

0

0

0

0

0

Other intangible assets

1,211

1,082

1,082

1,082

1,082

Tangible Assets

18,154

18,938

19,438

19,938

20,438

Investments

0

0

0

0

0

Deferred tax assets

4,388

5,030

5,030

5,030

5,030

Current Assets

 

 

66,035

65,662

81,124

97,675

118,691

Stocks

4,460

4,179

4,791

5,200

5,748

Debtors

43,194

39,800

45,633

49,525

54,743

Cash

18,381

21,683

30,700

42,950

58,200

Other

0

0

0

0

0

Current Liabilities

 

 

(38,222)

(40,363)

(44,464)

(48,256)

(52,295)

Creditors

(37,254)

(40,363)

(44,464)

(48,256)

(52,295)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(23,114)

(21,024)

(16,660)

(13,660)

(10,660)

Long term borrowings

0

0

0

0

0

Other long term liabilities (including pension)

(23,114)

(21,024)

(16,660)

(13,660)

(10,660)

Net Assets

 

 

28,452

29,325

45,551

61,809

82,287

CASH FLOW

Operating Cash Flow

 

 

30,622

46,468

42,000

47,500

51,300

Net Interest

30

(23)

40

45

50

Tax

(8,730)

(9,423)

(11,252)

(12,117)

(10,985)

Capex

(10,912)

(3,267)

(3,200)

(3,200)

(3,200)

Acquisitions/disposals

0

0

0

0

0

Pension contributions

(825)

(17,354)

(3,300)

(3,200)

(3,350)

Financing

0

65

0

0

0

Dividends

(9,604)

(12,141)

(15,238)

(16,784)

(18,567)

Other

(501)

1

0

0

0

Net Cash Flow

80

4,326

9,050

12,244

15,249

Opening net debt/(cash)

 

 

(18,301)

(18,381)

(21,683)

(30,700)

(42,950)

Net impact of disposals etc

0

0

0

0

0

Other

0

(1,024)

(33)

6

1

Closing net debt/(cash)

 

 

(18,381)

(21,683)

(30,700)

(42,950)

(58,200)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4imprint Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 4imprint Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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