Buy IG's designs on the US

IG Design develops and sells gift packaging, cards and stationery, as well as creative play products. It has operations in 80 countries, but following a recent acquisition the US is by far its largest geography, generating half its sales last year, or 68 per cent factoring in a full year from its August 2018 stateside acquisition. 

By virtue of being in the gifting market, trading is skewed heavily towards Christmas, where it makes 56 per cent of its sales. Debt also surges around this time; a noteworthy risk. 

The group has “end-to-end” capabilities to design, manufacture and distribute its products. Products manufactured in-house account for roughly 30 per cent of sales. However, it is still vulnerable to shifts in raw materials prices, Brexit uncertainty and US-China trade tensions. 

Control of the whole process has contributed sustained margin improvements over recent years (see chart). Meanwhile, the  “working with the winners” strategy has propelled sales growth. In 2019, IG's top 10 clients accounted for 48 per cent of sales, from 39 per cent the year before. Organic sales growth for the year was 9.8 per cent, while underlying operating margins rose from 7.1 to 7.3 per cent and return on capital employed (excluding intangibles and cash) climbed from 22.5 to 24.3 per cent. The group's adjusted cash profit to average net debt – the so-called leverage ratio – also continued its downward trend, despite last year's acquisition spending.

Key to sustaining the trends shown in our chart will be the long-term success of last August's £82.2m acquisition of Impact Innovations. Last year, IG took £8.2m of exceptional costs associated with the deal, including restructuring charges that should help set in train expected annual cost savings of $5m (£4.1m) within three years. More importantly, Impact introduces important customers to IG including big US retailers such as Target and Walmart – the latter will account for around a fifth of group revenues.