4Imprint looks beyond the logo

But in 4Imprint’s (FOUR) case, there are several reasons to look beyond the catchy slogan of the promotional products direct marketer. Listed in the UK but with 97 per cent of sales coming from North America, the company operates a capital-light and cash-generative business model, and it is experiencing noteworthy early success from a new growth initiative.

4Imprint is aiming to grow share in its “large and fragmented” markets using data-driven offline and online advertising strategies. Earlier this year it announced a brand-building programme to help it achieve sales of $1bn by 2022. Judging by its half-year numbers to June, its goal could easily be exceeded.

During the six months 4Imprint gained 138,000 new customers compared with 125,000 during the same period in 2017. New customer orders rose by 13 per cent. Encouragingly, customers also seem happy to stick with 4Imprint once they've come on board, with first-half orders from existing customers up 18 per cent.

Overall, total orders processed climbed by an impressive 17 per cent to 683,000, with revenues increasing by the same percentage to $348m. And at the start of this month the company said second-half growth has remained in line with the first six months of the year.

There were, however, some grounds for concern about the pace of expansion from the first-half numbers. The gross margin declined by 0.7 percentage points, largely as a result of the faster-than-expected rise in orders, which put pressure on 4Imprint’s “operational capacity”. The company has reassured investors that its systems and supply infrastructure are scalable, and reckons the gross margin should stabilise in the second half. The drop in gross margins, coupled with the planned increase in operational costs associated with new marketing drives meant underlying first-half pre-tax profits were flat. That said, US tax reform meant earnings per share (EPS) was up healthily.

While 4Imprint's operating margins are not particularly impressive, there's more to its business model than the profit-and-loss account. While the company does have to manage some sizeable working capital items, in all it has very limited capital requirements. This is thanks to its ‘drop-ship’ approach, whereby product suppliers hold and customise inventory before orders are shipped directly to customers.

This means the company's capital turnover (sales to average capital employed) is very high, coming in at 14 times last year. The model also supports strong cash generation. Coupled with a solid balance sheet – even after accounting for a £16.8m pension deficit – this mean 4imprint was happy to pay out a 60ȼ (43p) supplementary dividend in May this year.