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.
Our new FY21e forecasts are based on top-line growth of just below 10%, well ahead of the market. 4imprint’s consistent approach has been to grow revenues through investment in a range of marketing approaches, while maintaining a stable operating margin profile. The Oshkosh distribution facility was extended in FY19 at a cost of $5m. There is no new news at this point on further expansion either in Oshkosh or elsewhere in the US. The sizeable cash resource (and continuing high levels of cash conversion) mean any such investment should be easily funded.
4imprint continues to grow considerably faster than the promotional products distributor market, which industry body ASI estimates was growing at 4.3% in Q319 year-on-year. Given the size of the addressable market (around two-thirds of the total estimated $23bn US promotional products market), there is plenty of scope for years of continuing premium growth without approaching market share hurdles. The industry seems to have tackled the potential disruption from US-China tariffs effectively, although those set to be introduced in December did not take effect. Promotional products remain an attractive marketing medium for businesses for both external marketing purposes and internal motivational programmes.
4imprint’s shares continue to trade at a premium to quoted UK marketing services peers, with which it has little in common. Its long, positive trading record, high cash conversion (five-year average: 103%) and progressive dividend also single it out. A DCF on our numbers (rolled forward a year) based on conservative assumptions of a 9% WACC and 3% terminal growth suggests a value of £29.37 per share, from £26.72 in our last note. An 8% WACC assumption generates a value of £34.69.