IG Design Group PLC (LON: IGR) – On track to deliver FY21 results ahead of market expectations. 

IG Design Group PLC (LON: IGR) is a FTSE AIM 100 Index listed Company, which designs, innovates, and manufactures products related to Gift Packaging, Craft & Creative Play, Celebrations, Stationery, and Gifting. The Group was founded in 1979 when Scandinavian Design came into existence to manufacture and supply gift wrap to retail and wholesale customers. Post attaining rapid growth, the Group rebranded the business as International Greetings in 1989 to reflect the international expansion. Through organic and acquisitive growth, the Group has transformed into the IG Design Group, representing a diverse Group of Companies operating across multiple regions, seasons, categories, and brands. Presently, it serves over 11,000 customers in more than 210,000 stores across the world, with prominent operations in Europe, Asia, UK, Australia, and the Americas.

On 15 January 2021, IGR paid the interim dividend per share of 3 pence with an ex-dividend date of 3 December 2020.

 (Source: Presentation, Company Website)

Growth Prospects and Risk Assessment

The Group transforms paper into products that help the world celebrate life’s special occasions. It has a complete end-to-end service from design to distribution. It enjoys a considerable market presence around the world by serving in more than 80 countries through over 210,000 stores. The Company’s focus on the strategy 'Working with the winners' continues to deliver organic revenue growth in key markets. Presently, the Company has a strong order book and financial position, which underpins a bright outlook. Moreover, the synergies from the CSS integration are expected to deliver ahead of expectations.

However, there are certain risk and uncertainties, which can impact business performance and growth trajectory. The failure to attain the expected synergies from acquisition integration projects can lead to a massive restructuring cost. Moreover, the emerging risk of Covid-19 has been affecting economic activities, and it is posing an additional operating cost for the safe management of operations. Also, the dispute between the US and China can significantly impact the tariff costs. The overdependency on key customer poses a risk to the business revenue. Moreover, during the uncertain economic conditions, the Company needs to regularly evaluate the debtors and credit risk profiles of key customers. The Company is also exposed to market risks such as interest rates, equity prices, foreign exchange rates as these could affect income or the value of holdings of financial instruments.

Now will analyse some key fundamental and shareholders statistics of IG Design Group PLC.

Recent Development

4 January 2021: With an immediate effect, IGR announced the appointment of Greg Hodder as Independent Non-Executive Director.

Trading Update for the nine-month period ended 31 December 2020 (as on 25 January 2021)

• During 9M FY21, reported revenue jumped 35% year-on-year to nearly US$737 million (US$242 million contributed from CSS Industries).
• The inclusion of CSS Industries for the first time primarily driven the increase in the Group's Adjusted profit before tax.
• As of 31 December 2020, net debt stood at US$26.3 million, reflecting a year-on-year reduction from US$69.1 million (on 31 December 2019).
• For FY21, the Group expects to report the average leverage below 0.5x Adjusted EBITDA.

Financial and Operational Highlights (for the six months ended 30 September 2020, as on 24 November 2020)

 (Source: Company Website)

• IG Design delivered stronger than expected H1 FY21 performance as revenue climbed 41% year-on-year and adjusted profit before tax rose 16% against H1 FY20.
• The growth was driven by the inclusion of CSS acquisition, albeit the trading was hampered by the Covid-19 led restrictions.
• The net debt position also improved at the end of H1 FY21 with an average leverage at 0.2x.
• The interim dividend was maintained as same as last year at 3 pence per share.
• The order book was over 80% of the FY21 revenue forecast, while the capital investment spend was lower than the previous year.

Financial Ratios (H1 FY21)

(Source: Refinitiv, Thomson Reuters)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 13 April 2021, at 8:53 AM GMT, IG Design PLC’s shares were trading at GBX 581.00, down by 0.68% against the previous day closing price. Stock 52-week High and Low were GBX 653.00 and GBX 390.00, respectively.

From a technical standpoint, 14-day RSI (46.23), 50-day SMA (GBX 543) and 100-day EMA (GBX 546) are indicating an upward trend in the stock and supporting the upside potential.

Over the past six months, IGR’s stock price has delivered a return of ~35.12% return as compared to ~19.91% return of the FTSE AIM 100 index and ~8.68% return of the FTSE All-Share Household Goods, which shows that the stock has outperformed the benchmark index and the benchmark sector.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

The Group entered the financial year 2021 with strong momentum and achieved growth in revenue and adjusted profit before tax above the market expectations. It has responded well to the unprecedented pandemic while maintaining operations in all regions and focused on cash and cost management. The operations were benefited by the acquisition of CSS as it resulted in revenue growth and with improvement in net cash position. During H1 FY21, IGR demonstrated agility of the business model and maintained a strong future pipeline, and therefore, the FY21 performance is expected to be ahead of market expectations. Despite global and regional challenges, the outlook is encouraging since the demand for IGR’s product offerings remained robust throughout 9M FY21, and integration of CSS is expected to deliver synergy savings and create further sales opportunities.

(Source: Presentation, Company Website)

Based on the decent growth prospects, stronger financial position, robust orderbook, expected synergy from CSS acquisition and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 581.00 (as on 13 April 2021, at 8:53 AM GMT), with lower double-digit upside potential based on 26.51x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.). 

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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