Many happy returns
International Greetings (LONDON:INGR) has delivered strong growth in earnings, ended its financial year with net debt below previous estimates and returned to the dividend list a year ahead of earlier expectations. While underlying markets provide little stimulus, there remains plenty of scope for the group to grow its top line through increase in market share, particularly in the large US market, leveraging its highly efficient manufacturing production and strengths in global sourcing. The share price is now recognising some of the achievement to date, but not necessarily the ongoing opportunities.
US market key to top-line growth
Two years into its three year plan, International Greetings (IGR) has dedicated considerable capex into upgrading its manufacturing facilities in China, the Netherlands and Wales. These are all performing, at the very least, in line with targets and are driving progress on margin. Tackling the considerable opportunity in the US has been delayed by the sad death of the US CEO last year, but the new incumbent (appointed in April 2015), is already outlining the strategy to build market share within new customer categories, as well as looking at opportunities in other markets. Continuing product innovation and new product licences agreed with Walt Disney Company (NYSE:DIS) and Universal Studios should also put a shine on performance, which remains on track to meet management’s ongoing target of double-digit cumulative average growth in earnings per share. Management bandwidth has freed up post the US appointment and the finishing of the main capex projects, and acquisitions to broaden the offer in adjacent categories, or strategic deals, such as last year’s Enper purchase, are now more likely, subject to meeting stringent payback hurdles.
Leverage greatly reduced
Performance on net debt was even better than the previous ambitious target of £30m, helped by tight working capital management, particularly in the US. The newly-stated aim is to reduce average net debt from the current 4x to 2.5x by FY19. Our model shows year-end net debt reducing to £26m at end FY16 and £22.5m for FY17. The group has declared the intention to pay a 1p dividend, rising thereafter.
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