IG Design suffers Americas slowdown

IG Design (IGR) shares have made some upwards progress since the stationery and gifting company said in an October trading update that it had enjoyed "significant growth in profit and margin" and that robust cash flow meant that net debt was well down in the first half of its financial year. 

In the end, adjusted operating profit was up 26 per cent to $38.2mn (£30.3mn), with the related margin boosted by 270 basis points to take it up to 8.6 per cent. Net debt was down from $73.7mn to $15.1mn year on year. 

This was achieved despite trading being severely impacted by a downturn in demand for the company's products in its key Americas market. Revenue at the division, which contributes around 65 per cent of total sales, fell by an eyewatering 24 per cent to $282mn in the period as weakness was felt across all categories. 

Wavering demand was also seen in the order book against budgeted revenue levels at the end of October, which was 86 per cent compared with 92 per cent last year. 

On the other hand, international revenues were up 8 per cent to $162mn. This was driven by trading in Europe, where the company said the consumer market has been more resilient than elsewhere. And operating profits and margins were up at both divisions despite the mixed revenue performance. 

Importantly, management said the business is on track to increase the full-year adjusted operating profit margin to at least 4.5 per cent by 2025. This is a key target when judging the business against pre-pandemic indicators. 

House broker Canaccord Genuity assumes that dividends will resume in 2025. The shares are rated at 16 times the broker's forward earnings forecast for 2024, making the company fully valued in our view. Hold. 

Last IC view: Hold, 140p, 20 Jun 2023