Small-cap stars sold on 4imprint

The markets in which 4imprint operates are fragmented and its own share is still small. This provides it with plenty of scope for growth, with the focus on organic expansion as it has been for several years. A trading statement last month revealed that revenue was up by 17 per cent in 2019 to $861m (£662m), which puts the group well on course to achieve – and likely exceed – its target of $1bn in sales by 2022. Underlying pre-tax profits are expected to land at the upper end of the forecast range and net cash stood at $41m at the end of December, up from $27.5m.

The latter point is testament to the extremely low level of capital the company requires to grow. It focuses its operations on sales and marketing, while keeping more capital-intensive activities at arms length with its ‘drop-ship’ model. This model sees suppliers hold all inventory, before orders are shipped directly to customers. Indeed, 4imprint’s own inventory typically represents just 1 per cent of its sales, while payments are received from customers and made to suppliers in quick time.

The company does have some investment needs of its own such as the $5m expansion of its Wisconsin distribution facility last year. Overall, though, the capital employed by 4imprints’ operations is extremely low relative to revenue, representing just 7.5 per cent of sales over the past 12 months. That means, despite relatively low operating margins of about 6 per cent, the group boasts a phenomenal return on capital employed – almost 70 per cent last year. 

The model does run the risk that disruption to the operations of suppliers could come back to bite 4imprint – but it says that it has a rigorous supplier selection process, and relationships with alternative suppliers for each product category. Also, any economic downturn in the US is likely to hurt. That said, performance in recent years has been particularly encouraging, bolstered by a brand awareness project launched in 2018.