4Imprint makes a strong impression – should you buy?

4Imprint (LSE: FOUR) is a direct marketer of promotional products in the US, Canada, UK and Ireland with an extensive product range. It is worth £1.55bn. North America accounts for 98% of sales. Innovative marketing and excellent customer service allow the company to introduce millions of customers to tens of thousands of customised products.

Typical products include banners and giveaways for trade shows, personalised bags, lanyards, mugs, clothing (T-shirts, hats, jackets), umbrellas, pens, notebooks, personalised sticker rolls, desk ware, USB drives, phone chargers and tins of goodies (sweets, mints, popcorn). Products are often from well-known brands but 4Imprint has developed several in-house brands to fill specific gaps within categories such as bags, drinkware and notebooks.

The promotional products market is very fragmented but 4Imprint has gained market share over the years and is now thought to be the leader, with more than 5% of a fragmented North American sector estimated at $26bn. That illustrates the company’s potential for further growth through market share gains. Its excellent customer service and delivery promise have helped it flourish. For example, if the customer finds within 30 days that they could obtain the products more cheaply elsewhere, 4Imprint will refund double the price difference. Furthermore, free samples or artwork are provided to prospective customers who can place orders either online or by phone.

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Most orders are “drop-shipped” directly to customers from suppliers and this helps speed up delivery. It also means that 4Imprint carries low inventory, which gives it a high return on capital, a key gauge of profitability, of around 82%.

Why 4Imprint is gaining popularity

4Imprint has more than 1.1 million monthly online visits, many more than its major competitors such as discountmugs.com with 260,000 visits. The group’s marketing strategy includes customer retention campaigns; digital marketing using search engine optimisation (SEO), accounting for about half of all its website visits; and paid digital advertising and TV advertising (typically 10,000 airings per month).

4Imprint has a diverse set of customers, ranging from most Fortune 500 companies to family businesses and spanning government organisations, churches and schools, major universities and hospitals. Promotional products are used for sales and marketing campaigns, recruitment activities, employee recognition programmes, and health and safety initiatives. 4Imprint regards individuals placing orders as its primary customers rather than their organisations. Targeting these order placers is proving effective – 75% of all 2023 orders were from existing customers.

CEO Kevin Lyons-Tarr was promoted internally to group CEO in 2015. Sales grew from $49m in 2002 to $1.33bn in 2023, a compound annual growth rate of 16.9%. This growth has been almost entirely organic. There was an inevitable dip in sales in 2020 and 2021 owing to the pandemic, but by 2022 sales were up to $1.14bn, compared with $0.86bn in 2019. 4Imprint is a capital-light business that achieved a relatively high operating profit margin of 10.3% in 2023.

A North American promotional products industry body noted that the promotional products market was essentially flat in the first half of 2024. This reflected economic caution because of the US Federal Reserve’s decision not to cut interest rates in the first half, fears of a potential recession and ongoing geopolitical instability. 4Imprint’s 5% revenue growth for the first half compared with the same period in 2023 therefore represented gains in market share.

Buy 4Imprint to ride the US rebound

4Imprint’s 2023 results showed orders up 12% from 2022, revenue up 16% to $1.33bn, operating profit up 32% to $136.2m and pre-tax profit up 36% to $140.7m. The balance sheet on 31 December 2023 showed net cash of $104.5m, up 20.4%. The dividend was raised by 34% to $2.15 per share.

The interim results for the first half of 2024 were released in August and showed revenue up 5% to $667.5m, which given the flat promotional-products market means 4Imprint gained market share.

Operating profit was up 10% to $69.9m and pre-tax profit was up 11% to $73m. Net cash on 30 June was up 63% year on year to $121.5m. Total orders in the first half were up 3.6%, while 145,000 new customers were acquired.

A trading statement on 12 November confirmed that full-year group profit at just over $150m would meet analysts’ forecasts, with revenue expected to hit $1.37bn. Net cash on 31 October was $137m. Total order value was 4% above the same period in 2023.

The company has grown dividends strongly since 2019, with the 2023 dividend totalling more than ten times the 20.5p paid in 2019. But no dividend was paid in 2020, showing that 4Imprint will not sacrifice growth initiatives or cash balances in hard times.

Expenditure on promotional products is partly discretionary for many organisations, so the market tends to be flat or shrinking in difficult economic times. However, the International Monetary Fund predicts US GDP growth of 2.8% in 2024 and 2.2% in 2025. Reuters expects interest rates to reach between 3% and 3.25% by the end of 2025.

Given this outlook and 4Imprint’s proven ability to take market share, 4Imprint should enjoy further expansion. Net cash of $137m, a forward dividend yield of 3.6% and a forward price/earnings (p/e) ratio of 15.3 make this a sensible entry point to await the upturn.

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