4Imprint Group Plc (LON:FOUR) ’s results show continued strong progress, with FY18 revenues up 18% on the prior year, coming in just ahead of our forecasts. The growth was supported by additional brand awareness spend, with revenue per marketing dollar holding up very well at $5.63 (FY17: $5.67). The group continues to be well placed to carry on growing its market share in the substantial and fragmented promotional goods sector, on margins that should edge ahead. Our FY19 revenue forecast is lifted 2%, with a slightly lower increase in earnings reflecting further brand support marketing. The group has strong cash conversion (100%) and a cash rich balance sheet. We consider that there is further potential upside to the share price.
Driving growth through data-driven marketing
We published a detailed report in January and these results confirm our perception that the strategy of recruiting and retaining customers through a range of data-driven marketing techniques is capable of delivering growth well ahead of the market (which is estimated by management to be growing at 5.0%). There were 1.389m customer orders processed in the year, up 17%. The group is comfortably on track to meet the self-imposed objective of hitting $1bn of revenue by FY22. The brand awareness campaign has increased both direct and search traffic to the website and will form an ongoing part of the marketing mix. We have incorporated this into our modelled operating margin. Our FY19 and FY20 PBT and EPS forecasts are lifted 1% at this early stage of the year, which has reportedly started well.
Plenty of cash to invest for the next stage
The pace of growth – in particular the successful build of the apparel offering – has meant that additional capacity at the main Oshkosh distribution centre, put in three years ago to cater for the next five years, now needs to be extended again. $5m of capex has been allocated for this project in the current year (H1). Despite this, and a progressive dividend (up 20% for FY18), our model shows net cash (there is no debt) building to $38.1m by the year-end and to $55.1m by the end of FY20e.
Valuation: Continued positive trading momentum
The group trades at a premium to quoted UK marketing services groups, but there is little in common with this group operationally. 4imprint’s long, positive trading record, cash conversion and progressive dividend also single it out. A DCF on our numbers indicates further potential upside, suggesting a value of £23.26 (on a WACC of 9% and terminal growth of 3.0%), from £22.87 at the time of our last note.
Business description
4imprint is the leading direct marketer of promotional products in the US, Canada, the UK and Ireland. 97% of 2018 revenues were generated in the US and Canada.
