4imprint sees resurgent demand

4imprint (FOUR) has belied fears that it would suffer from macroeconomic headwinds in the first half of the year. Rising input costs and a recession should have been damaging to profitability. However, 4imprint managed to generate an operating margin of 8.5 per cent – its highest in the last decade.

Part of the reason for the improved margin was a switch to a “brand marketing campaign” which resulted in a big boost in marketing productivity. Revenue per marketing dollar increased 50 per cent year on year to $8.19 (£6.77). Admittedly, some are a little critical of this as a metric of efficiency. Revenue might be increasing simply because the economy has reopened and companies are ordering a lot of goods with their logo printed on them to make up for lost time. We will have to wait and see if revenue per marketing dollar stays at this level for an extended period. 

Based on its recent performance, it’s undeniable that the business is booming. Operating profit jumped from $3.6mn up to $44mn, which is more than double than for the same period in 2019. Lots of this is being turned into cash with a conversion rate of 112 per cent. Management is confident it can keep taking market share and is expecting revenue of over $1bn for the full year.

Broker Peel Hunt agrees with this guidance and has upgraded its 2022 EPS forecast by 10 per cent to 226p. However, we remain a little sceptical. The printing company is currently trading on a forward PE ratio of almost 20 and, heading into a recession, this looks too expensive for our liking, particularly with the post-Covid boom about to slow down. Sell.

Last IC View: Sell, 2,855p, 16 Mar 2022