Gift packaging-to-Christmas cracker maker IG Design (IGR:AIM) continues to trade well. A strong last quarter to 31 March 2019 wraps up another year of impressive double-digit sales and profits growth.
Operating profits are even expected to be ‘significantly ahead of last year’. Yet the shares are off 2.5% at 585p today. Presumably there are investors keen to take profits off the table following a strong run.
The stock has rallied more than 10% in April alone although it has struggled to break beyond its 500p to 600p trading range in recent months.
READ MORE ABOUT IG DESIGN HERE
IG Design assures the market financial results for the year ended 31 March will be ‘significantly up year on year’ and in line with market expectations. This is obviously very good news, yet IG Design is a victim of its own success today, since the absence of another round of earnings upgrades leaves increasingly demanding investors underwhelmed, at least judging by the share price reaction.
MAKING A BIG IMPACT
IG Design produces products that help the world celebrate life’s special occasions – everything from cards and gift wrap to gift bags and creative play products – and is highly diversified in terms of geographic region, product, season and retail customer. The latter list reads like a who’s who of retail, including powerhouse names such as Tesco (TSCO), Walmart, Costco, Target and also Lidl and Aldi.
IG Design’s revenue for the year is expected to have increased 37%, driven mainly by last summer’s acquisition of Impact Innovations, although the company is also guiding towards healthy organic growth of 9.8%.
Encouragingly, operating profits will be significantly ahead year-on-year thanks to the Impact Innovations acquisition and improved operating margins, primarily reflecting a record performance in Europe and sales and profits improvement in a tough Australian market.
The £56.5m takeover of Impact Innovations turned IG Design into the biggest consumer gift packaging business in the world and has provided a platform for expansion in the growing seasonal fabric and décor market. Last month, Impact was even awarded ‘Seasonal and Celebration Supplier of the Year’ by Walmart, the world’s largest retailer.
IG Design also says net cash ended the financial year significantly ahead of the prior year and ahead of expectations – average leverage during the year is expected to have been below 1.3 times EBITDA, down from 1.5 times in full year 2018. Given its impressive cash conversion and strong financial constitution, the group expects to increase the earnings payout ratio at the full year.
FOSTERING CLOSE TIES
Paul Fineman, CEO, comments: ‘Our strong performance in full year 2019 reflects our close relationships with the world’s leading retailers, our focus on innovation and efficiency and the increasing benefit of scale as we continue to grow.’
‘It is particularly pleasing to have achieved significant organic growth whilst also benefiting from the acquisition of Impact Innovations and other investments made throughout this and prior years. This achievement is testament to the global nature of our business and the extent to which we have diversified and de-risked the group.’ He is looking forward to ‘continuing to drive the business forward, with a focus on continued organic growth, supplemented by compelling M&A.’
THE BROKERS' VIEW
Canaccord Genuity has an 800p price target on the stock, implying the best part of 37% upside. The broker comments: ‘The group’s strategic pillars of working with the winners, design and innovation, and efficiency and scale should allow it to achieve sustained and profitable organic growth.’
Paid-for-research house Progressive Equity Research sticks with its full year 2019 and 2020 earnings per share estimates of 27p and 31.5p respectively, but also notes ‘the potential for upgrades from further benefits flowing from the acquisition of Impact Innovations’.