IG Design Group PLC (LON:INGR) is extending its position in the Australian greeting card market with the acquisition of Biscay Greetings, through its joint venture, Artwrap. Along with Artwrap’s previously-announced new major contract coming through, IG Design now has a wide product range and a strong market presence, particularly in the value sector. The deal (not yet reflected in our forecast) is set to complete after the key Christmas trading period. The full benefit will be felt in FY19, when we expect it to be earnings’ enhancing. Last month’s trading update showed good sales momentum into FY18, with the forecast growth and cash generation supporting the valuation.
Doubling share of Australian value card market
Management estimates that the acquisition of Biscay’s trade and assets will double IG Design’s share of the value greeting card market in Australia. Founded in 1971, Biscay has a well-established and sizeable customer base and there should be plenty of opportunity for cross-sales. The Artwrap 50:50 JV has been through considerable upheaval over recent periods as it reoriented sales away from the commoditised Christmas market, with a new CEO appointed in April 2017. As previously reported, it won a major three-year contract for ‘everyday’ cards, with some associated upfront costs affecting margins in the short term. This new deal will also need some restructuring (cost estimated at £0.4m, including transaction costs), but should bring economies of scale that will help drive margin recovery over the next couple of years. On a pro-forma basis, the Australian business should generate c 13% of revenues in FY19, with the US continuing to dominate at 39%.
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