A 45% rise in pre-tax profit, 10% hike in the dividend and £15.8 million net cash position put a shine on marketing products specialist 4imprint (FOUR). The shares rise 1.7% to 686.75p as investors welcome significant progress in the US which accounts for 96% of group revenue.
4imprint is a distributor of customised products like pens and caps used by businesses as promotional items. It processed more than 600,000 orders last year and offers 20,000 different products for sale. The small cap recently sold its SPS UK manufacturing operations but retains a small but growing presence in UK distribution.
Like all firms that earn in dollars and report in sterling, 4imprint has suffered unfavourable foreign exchange rates in today's results. Finance director Gillian Davies says the group could report its accounts in dollars but there's no plans to change. Finncap says the current £:$ exchange rate produces a 5% headwind to pre-tax profit forecasts, together with a 7% dilution from the SPS disposal. Yet this is offset by 8% upgrades from underlying growth expectations. The net effect is a 4% downgrade to 2014 profit numbers.
WH Ireland has a 785p price target for the stock. It comments: 'Now a pure play business in the Direct Marketing sphere with strong analytics and track record, we believe that FOUR has significant further opportunities to grow by expanding its market share from the current c.2% in a $20bn market.'
Earnings growth is driven by investment in marketing, says executive Kevin Lyons-Tarr who runs the US operations. 'We are a very unique player and the largest direct marketeer by a fair amount in the US.' 4imprint uses catalogues and online activities to acquire new customers. Once the first order has been placed, 4imprint uses data analytics to drive its 'Blue Box' programme. It sends a selection of customised items free of charge to illustrate how the client's logo would look on different products. These samples help to entice further sales, claims 4imprint.
The key performance benchmark is revenue generated per marketing dollar. It spent $50 million in 2013 and achieve average $5.72 sales per marketing dollar, up from $5.48 a year earlier. 4Imprint attributes this to improved yield on marketing initiatives and favourable postage and paper prices in 2013.
The group's net cash will probably be used to help fix a £16 million pension deficit, says Davies. The shares have nearly doubled since we highlighted 4imprint's potential as a Shares Play of the Week in November 2012 at 350p.
'4imprint has delivered tremendous organic growth for a decade, increasing market share in a highly fragmented growth industry and reinvesting in marketing, technology and people to enhance the service offering and drive further growth,' says Espirito Santo analysts Alex Paterson. 'We believe this market will follow a typical life cycle with 4imprint positioned to take considerable market share over a long period of time resulting in sustainably high growth.'