While revellers were busy pulling Christmas crackers a fortnight ago, International Greetings (IGR) was busy counting the pennies. That's because, whether your crakers were bought from M&S, Sainsbury's, Aldi, Asda, or even Costco in Mexico, the chances are they were made by the company - the biggest purveyor of Christmas crackers in the world. But there's more to IGR than just crackers. It also manufactures wrapping paper, gift bags, ribbons, greeting cards, pens and pencils and stationery, supplying more than 100,000 retail outlets across more than 80 countries.
- Cheap rating
- Renegotiated debt arrangements
- Infrastructure upgrades
- Double-digit forecast EPS growth
- Business rebalanced
- Retail customers under pressure still
- Wide bid-offer spread on shares
The company was in dire straits back in 2007 due to a string of poor management decisions. It suffered three profit downgrades, took on an awful lot of debt and saw its market cap plummet from £240m to £6m in just one year. While the share price has recovered somewhat since the low, the market cap is still small and the wide bid-offer spread is something investors need to be wary of.
Since being appointed in 2009, chief executive Paul Fineman has helped to steer the company out of troubled waters. With most of the heavy lifting now complete, the business appears much healthier and poised for a major recovery, which could send its cheap shares soaring. A number of important changes are helping the business. First, focus has been shifted to mass and discount retailers, where "all the action has been", according to Mr Fineman. New sales channels include the Dollar Store chain in the US, shops like Aldi in Europe and Mexico's largest retailer. Global giant Costco is IGR's biggest customer. The company is better balanced, too, having reduced its dependence on the UK over a number of years to its current level of 40 per cent of sales, and sales are now only a little over half Christmas-dependent.
Debt arrangements have been renegotiated on better terms and investment in machinery is improving manufacturing efficiency. IGR's gift wrap facility in Europe has a state-of-the-art printing press, while the Chinese cracker-making factory is producing better quality goods more cost-effectively. It's facility in Wales is undergoing renovation, too, and will soon house the latest in high-speed, high-definition printers, set to come on stream this spring. These changes have transformed IGR's manufacturing into a low unit cost, high volume process, which is key to future market, margin and profit growth. Indeed, the benefits from investment in China and Europe last year are already being felt and have significantly boosted margins and profit. This bodes well for the investment in Wales.
| INTERNATIONAL GREETINGS (IGR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 62p | MARKET VALUE: | £35m | |
| TOUCH: | 60-64p | 12-MONTH HIGH/LOW: | 65p | 29p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 8 | |
| NET ASSET VALUE: | 92p* | NET DEBT: | 152% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 217 | 4.27 | 7.70 | nil |
| 2012 | 221 | 3.17 | 0.30 | nil |
| 2013 | 225 | 5.68 | 6.00 | nil |
| 2014** | 231 | 5.03 | 4.70 | nil |
| 2015** | 237 | 7.18 | 7.50 | nil |
| % change | +3 | +43 | +60 | nil |
Normal market size: 2,000 Market makers: 6 Beta:0.26 *Includes intangible assets of £32.4m or 57p a share **Edison forecasts | ||||
Debt, though, is still too high, with a net debt-to-cash profits ratio at 2.8. However, the ratio has fallen faster than expected and the group is on track to cut it to below two by 2016, at which point dividend payments can re-start. Net debt should start falling materially in March, too, when capital spending has eased back. Macroeconomic pressure on IGR's retail customers also poses a potential risk. That said, it boasts strong relationships with many clients, some dating back two decades, which is a useful tool in a world where retailers are consolidating their supply bases.
And judging by the latest results, trading is heading in the right direction - the underlying pre-tax profit was up 8 per cent in the six months to September. Exceptional costs related to investment in manufacturing will dissipate next year as the benefits from these investments start to be come through. As such, management believes it can achieve double digit underlying annual EPS growth over the next three years. Yet the shares, which have doubled since the summer, still trade on just 7 times Edison's underlying EPS forecast of 9.1p for the current financial year dropping to just 6 times the underlying 10.3p the broker has pencilled in for the year to the end of March 2015. That's too low for a company with such good recovery prospects.
