4imprint’s first half trading was heavily affected by the commercial repercussions of the COVID-19 pandemic as it spread across the US. With uncertainty over the speed and extent of the reopening of the US economy, projections for the remainder of the year (and for FY21) are more tentative than usual. Despite the difficult trading circumstances, 4imprint retains a strong, cash positive balance sheet, and has low fixed costs and capital requirements. We believe that it retains its long-term attractions in a large, fragmented market and should rebuild quickly as the economy recovers
Companies: 4imprint Group plc
This morning's results from FOUR starkly reflect the impact of the pandemic on the company's mid-sized US corporate customer base and on demand generally in the US economy, with gross margins eroding from 32.5% to 29.1% and underlying PBT of $US0.25m a fraction of the H1-19A $US19.8m. Just shy of half a million orders processed in the first half compares with nearly 800,000 in the comparative period in 2019. All of this said, however, these results reflect both the start of improving trends during the latter part of the period and, more importantly, vigorous action by management to preserve cash and manage the cost-base effectively. On the former point, order counts, which stood at 20% of the prior year during the most intense phase of the lockdown in the US, have now moved through 50%, while showing steady upwards progress.
Companies: 4imprint Group Plc
4imprint’s order volumes are starting to recover as the US economy reopens. The company has been diligent at updating the market and the latest update shows order levels improving towards 50% of prior year, having dipped as low as 20% in early April. Cash conservation measures are having the desired effect and the group still had $28.1m cash (with lease debt only) at the end of May, despite having paid out $9.4m as a one-off lump sum into the pension scheme as scheduled. Based on assumptions over the speed and extent of the recovery but in the absence of formal management guidance, we have reinstated provisional forecasts.
We are encouraged by FOUR's update this morning and by the news that order counts have risen significantly, from 20% of the prior year highlighted in the previous (April 7th) RNS to 50% now, with good momentum as now the vast majority of US states have to a greater or lesser degree moved out of lockdown. Cash remains comfortable at $28.1m, and the company's strategy stayed on track during the lockdown with the payment of $US9.4m in a lump sum contribution to the defined benefit pension plan as planned.
4imprint (FOUR.L): Corp | Braemar (BRMS.L): Corp | Circassia Group (CIRCI.L): Corp | ClearStar (CLSU.L): Corp
Companies: FOUR CLSU CIR BMS
In previous downturns, 4imprint’s financial strength and marketing skills have enabled the group to take share and exit in a stronger position. The competition is largely significantly smaller, more local operators that do not have the same financial reserves or marketing expertise. The speed and scale of the COVID-19 downturn is likely to see this trend to an even greater degree. 4imprint has detailed that the lockdown directives in the US and UK have resulted in orders running at c.20% of 2019, and this limited level of activity is likely to continue. Marketing costs typically account for c.75% of operating costs, meaning the cost base can be quickly aligned to market conditions and management has stated the marketing portfolio has been radically re-shaped in a very short space of time, resulting in a mix that is appropriate to current circumstances in terms of both type and cost but equally provides a firm platform to take full advantage of improving conditions when they occur. At the end of Q1, the group had cash of over $50m and no debt; it will also not pay the final dividend, which would have cost $16m. The Board has not fundamentally changed its dividend policy, and it will reassess its position in coming months as the situation becomes clearer. No forward guidance is provided at this stage, and we consequently place our forecasts and target price under review for the time being. However, we maintain our view that 4imprint has the financial strength and proven market-leading business model to exit the current downturn in a stronger market position, providing the basis for the shares to regain previous highs.
4imprint has updated the market for the current impact of COVID-19 on its business, which has changed markedly in the last few days. When we reported on the FY19 results on 3 March, order intake was up 13% y-o-y. Since 10 March, the disruption to the US economy has started to take hold and order levels have dropped significantly. The extent and duration of this phase is uncertain, and we have therefore withdrawn our forecasts for now. The group has a high degree of control over its variable costs in marketing spend and an exceptionally strong balance sheet, with cash of $51m at the end of February and no debt.
4imprint’s consistent approach of investing in marketing to grow its revenue base continues to produce results well in excess of the market growth. FY19 results are as indicated in January’s update, with the top line up 17%, from new and returning customers. 4imprint is the largest distributor of promotional products in the US, yet its market share is under 4%. The key unknown for FY20 is the coronavirus, although the supply chain is well stocked. Our revenue and earnings forecasts are broadly unchanged. There is potential for expansion of 4imprint’s valuation multiples once current global health uncertainties are resolved.
Results ahead; year started well, monitoring COVID-19
FOUR has produced another set of excellent results today, with PBTA up by an impressive 20% YoY - ahead of our expectations (which were upgraded in January). Net cash was strong at $41m as foreshadowed in January. The positive results follow on from a decade-plus in which a strong model and a big market opportunity ($US20bn) have driven double-digit sales and profit CAGR for this company. The model combines highly effective data analytics and low error rates - leading to strong client retention, - and has also seen the benefit of new initiatives, such as the brand marketing techniques initiated in ‘19, resulting in a strong growth platform. Revisiting the outlook in the light of this morning's update, we leave our CY forecasts unchanged for the present, while adding a new set of '21E forecasts which see FOUR meet its $US1bn sales target a year early. In the past few days, the shares have come off by some 18% on the back of COVID-19-related market falls. However with inventories full ahead of the Chinese New Year, no impact has been suffered yet, and none is anticipated during the current quarter. FOUR is monitoring the situation closely, while expressing cautious optimism. We continue to see this stock as an essential part of the portfolio.
ANGLE (AGL): Corp | Braemar (BMS): Corp | Destiny Pharma (DEST): Corp | Gooch & Housego (GHH): Corp | President Energy (PPC): Corp | 4imprint (FOUR): Corp | DX (DX): Corp | Xeros (XSG): Corp
Companies: FOUR GHH AGL PPC DEST XSG BMS DX/
4imprint’s pre-close update indicates trading in the later weeks of the full year continued strong, with FY19 results set to be at the higher end of the market forecast range. Revenue (+17%) was slightly above our estimate, which we raised by $10m at the November trading update. The $41.0m net cash at the year end was also a little ahead of our forecast of $39.5m. We have initiated FY21 forecasts, which show the group exceeding management’s $1bn revenue target a year earlier than originally anticipated. The large scale of the addressable market leaves plenty of opportunity for growth, with potential for further share price appreciation.
4imprint continues to make its mark with excellent results, the latest being anticipated in this morning's trading update as the company lowers the blinds on FY2019E. Growth rates of c.16% in H1 accelerated to c.17% in H2, generating results ahead of expectation across all of the sales, PBTA and cash categories. This is particularly pleasing given the contribution of the brand initiative (new sales methods) started early last year – a new departure which has proved highly effective. Over a decade-plus of double digit CAGR, FOUR has made this sort of success look easy; however the model involves a complex combination of techniques, including notably the highly effective use of data analytics, while FOUR fulfils significant multiples of sensitive individual orders, with very low error rates leading to very high rates of client retention. Significant entry barriers remain as the company continues to dig into a large ($US20bn-plus) and profitable market of which it still has a relatively small share. Our forecasts for the current year are tweaked slightly upwards in line with this morning's update; our forward forecasts are left unchanged for now; but the outlook will be revisited when FY results are reported on 03/03. Our current fair value estimate of 3750p equates to a forward PE in the early 20s.
4imprint Outperforms again; positive FY update confirms strong H2 | Judges Scientific Trading update – small upgrades to FY2019E and FY2020E | Digital Box FY Trading Update – Strong end to the year yields upgrades |
Companies: FOUR JDG DBOX
Allergy Therapeutics (AGY): Corp In-line trading update. Progressing peanut…. | ofina (IOF): Corp Market update | 4imprint (FOUR): Corp At upper end of the range
Companies: FOUR AGY IOF
Having delivered 16% top-line growth in H119, 4imprint’s trading update indicates similar progress is likely for the full year. We previously assumed some slight tailing off in H2, so have now edged up our FY19 revenue estimate by $10m, lifting EBITDA by $0.6m. Management’s revenue target of $1bn by FY22e looks likely to be achieved well ahead of schedule. The extension to the Oshkosh distribution centre was completed on time and within the $5m budget, facilitating that forecast revenue growth. We regard the current share price as well underpinned, with further potential upside.
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Tremor has announced in today’s trading update that its platform has continued to gather further momentum since H1 20 results on 22 September, and it now expects FY20 revenue and EBITDA to be in the range of $340-360m for revenue and $30-36m for EBITDA. This leads us to upgrade our FY20 revenue forecasts by +6% to $350m from $330m, and upgrade our FY20 EBITDA by +32% to $33m from $25m at an incremental margin of 40%. This reflects that Tremor’s platform benefits from strong operational gearing that translates to EFCF, and we increase our FY20 net cash to $79m from $71m. This strengthening momentum for Tremor’s differentiated platform reflects that it is capitalising upon a rebound and shift in advertising spend through the success of the initiatives it launched in 2019 and the successful integration of Unruly, and we explain these factors in more depth from p9 of our 22 September report. Today’s announcement also marks the second upgrade to our Tremor forecasts since COVID-19 impacted the advertising market and Tremor in Q2, and this reflects that Tremor has adopted a prudent approach to its guidance. Applying a similar approach to our estimates, we conservatively do not change our FY21 forecasts, and this means that we continue to forecast FY21 organic revenue growth to $420m or +20% YoY, with organic EBITDA growth to $55m or +67% YoY. This conservative, strong FY21 organic growth means that Tremor looks substantially undervalued on 7x FY20 EV/EBITDA or 5x NTM, and a NTM EFCF yield of 6%; vs peers on 13-19x EV/EBITDA with NTM EBITDA growth of 18-47%, and EFCF yields of 1-2%.
Companies: Tremor International Ltd.
Tremor has reported a strong set of FY19 results and announced a prudent $10m buyback. The results are in line with January’s trading update, and demonstrate strong growth in Digital Video and Connected TV (CTV) advertising. Tremor has also seen a solid start to FY20, but COVID-19 could markedly affect a number of its clients. The management and board highlight that it is too early to fully assess the impact of COVID-19 on Tremor’s FY20 outlook, and we consequently leave our FY20 estimates broadly unchanged at this point. In this report we also explain Tremor’s investment case in depth, and highlight that Tremor is excellently positioned to capitalise on the major growth in Video and CTV advertising, and can see further upside from M&A and the resolution of the Uber case.
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
FY2018 results reflect a satisfactory performance, given continued softness in the book trade. Revenues fell by 2% to $149.3m but adjusted operating profit increased 43% to $10.3m. Children’s publishing increased by 2%, representing over one-third of group revenues. The group has extended its banking facilities to August 2020. Net debt fell by 6% to $60.4m. In 2018 the group implemented a cost-out programme to right-size the group. We shall look to reintroduce estimates in due course. We have the shares under review ahead of this.
Companies: Quarto Group, Inc.
The two leading adtech businesses on the AIM market – Taptica and RhythmOne – have come together, combining their programmatic advertising platforms to create a major player in the global video advertising market. Following completion of the deal, we now release preliminary forecasts for the combined entity. Taptica’s management has only just received access to a very complex and disparate organisation in RhythmOne, and there will doubtless be an evolution of expectations as understanding and integration proceeds. RhythmOne trading for the YE March 2019 was below expectation, but under Taptica’s management the combination nevertheless represents an excellent opportunity going forward.
Vela Technologies is an investing company focused on early stage and preIPO long-term disruptive technology investments. There are currently 12 investments in the portfolio which either have developed ways of utilising technology or developing technology with a view to disrupting the businesses or sector in which they operate.
Companies: Vela Technologies plc
De La Rue remains challenged. New management has to navigate a difficult Currency market and consequent concern over its finances. The swift response in terms of a turnaround programme is a positive start, accelerating cost cutting initiatives and cash management measures, including suspension of the dividend. Restoring stability and rebuilding confidence in the investment case is likely to take some time.
Companies: DLAR DELRF DL1C
Disney+ hits 22m mobile users, SoftBank backed firm downsizes IPO, German mobile carrier selects Huawei
Companies: ENET 7DIG MVR ZOO ZOO AMO BOOM MIRA MWE
Tremor has announced that it is acquiring Unruly from News Corp through the issuance of 8.5m new Tremor ordinary shares to News Corp (6.9% of Tremor’s prior shares or £14.5m), and Tremor has entered into a global partnership with News Corp for 3 years of exclusive access to outstream digital video adverts for over 50 News Corp publications, with Tremor committing to £30m of ad spend over 3 years. This indicates News Corp has considerable confidence in Tremor, and as News Corp now has a substantial interest in the Tremor investment case, it is anticipated that Rebekah Brooks (CEO of News UK) will join Tremor’s board. Tremor has also issued a short trading update, with FY19 EBITDA in line with market expectations (H2 c$39m), net cash in line except for a $5m advance, and FY19 revenue lower than expected due to Tremor focusing on its profitable, core activities and removing intercompany revenue. We consequently adjust our forecasts with a breakdown on p6. Tremor subsequently trades at a substantial discount to its peers on 12m fwd multiples of 2.4x EV/EBITDA and 5x adj P/E, and we look forward to Tremor issuing a more detailed trading update in late January.
Future’s audience growth metrics have proved stronger than expected in the first 4-months of FY’20E. Management now forecast financial performance to be ‘materially’ ahead of current FY’20E market expectations. We upgrade our FY’20E sales by 4%, and with outperformance indicated to be in higher margin profile eCommerce and digital display advertising areas, we upgrade FY’20E EBITDA by 8%. Given current macro uncertainty we leave FY’21E and FY’22E forecasts broadly unchanged although we flag heightened upside risk to forecasts. Pro forma FY’20E EBITDA is estimated at c.£103m implying an EV/EBITDA multiple of c.13x, whilst FY’21E OpFCF yield is forecast to reach 6.1% based on our undemanding forecasts.
Companies: Future plc
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
Companies: AMO BGO FDM GAMA KAPE LOOP TERN ZOO
We have knitted together the impact on the investment companies from what is now widely considered to be the most severe pandemic in a century. The collapse in asset prices over the latter part of March, brought the curtain down on an up-market that lasted more than ten years. In amongst this, there were pockets, such as the technology sector, that held up well. For many industries, the worst is still to come, as we brace ourselves for the sharpest contraction to global growth since the US great depression.
Companies: ASL SDV ASIT BGEU BRLA CCPE DPA IEM JMF JZCP JUKG EPIC PSHD CSH RIII CCPG BLP TMPL BPCR SEQI AIF SMT KKVX FAIR ICON RSE CRS GWI USF DIGS
Centaur has provided an update offering further insight into trading post-lockdown. Encouraging performance has been noted across digitally focused segments, with MiniMBA (e-learning) seeing strong demand and contract wins in Econsultancy and XEIM labs supporting clients with digital transformation projects. The Lawyer subscription renewal rate, supported by premium content, also remains healthy. As previously flagged however, Telesales has seen a sharp drop in sales as a function of disruption to customer businesses; c50% of MarketMaker staff have been furloughed to minimise impact to profits. H2 events are also at risk, although the Group is considering online formats early in order to reduce irrecoverable costs and maximise delegate and sponsorship revenues. Focus on near-term cash preservation has led to the prudent decision not to pay the final FY’19 dividend, saving £0.7m of cash. The Group held cash of £6.7m at April 3rd, with potential access to undrawn banking facilities of £25m subject to positive discussions currently being held to amend covenants should short-term liquidity be required. The range of outcomes remains wide, and we have no forecasts published at this time, however at 0.6x EV/ FY’19 sales the Group looks to be priced as a distressed asset. Given balance sheet strength, a building recurring revenue model and improving high-margin revenue mix, this valuation looks incongruous with fundamentals in all but the most extreme downside scenarios.
Companies: Centaur Media plc
Tremor’s AGM statement shows that Tremor was delivering on its strategy and on course to achieve FY20 revenue of $425m in Q1. However, the impacts of COVID-19 on the advertising industry led to a challenging Q2 20, with Tremor’s revenue falling with the market to be c40% below Tremor’s FY20 plan. In response, management have moved quickly to reduce FY20 opex by over $23m vs budget, and positioned Tremor’s platform to respond to a rebound in demand. There are encouraging signs for H2 20, but visibility continues to be low and Tremor is not giving guidance for FY20. We consequently introduce revenue and EBITDA ranges for FY20 and FY21, and place our estimates at the mid-point for FY20. To then highlight that Tremor’s platform can rapidly rebound, we move our previous FY20 forecasts to FY21. This reflects that we believe that Tremor’s investment case remains compelling, and even on our lower case FY21 EBITDA of $35m, Tremor is trading on 5x EV/EBITDA vs ad tech and AIM peers on >10x.
CentralNic’s capital markets day (CMD) on 24 June 2020 introduced the divisional management team and provided insight on each of the three key segments as they will report in FY20: Indirect (Wholesale, Registry); Monetisation (Team Internet); and Direct (Retail, Corporate). We have picked out what we believe are the four key themes from the CMD: FY20 performance, COVID-19 and seasonality; organic growth; M&A; and, pulling it all together, the benefit of scale. CentralNic continues to trade on an FY20 EV/EBITDA of 9.1x and a P/E of 15.8x, a material discount to its peer group, with our DCF indicating further share price upside. M&A could bring CentralNic’s multiples down further.
Companies: CentralNic Group Plc