IG Design Group PLC (LON: IGR)

IG Design Group PLC is an FTSE AIM All-Share Index listed consumer gift packaging Company founded in 1979. The Company designs, innovates, and manufactures products related to Gift Packaging, Craft & Creative Play, Celebrations, Stationery, and Gifting. It gives customers full service from design through to distribution and offers both branded and bespoke products. Its operations span geographically in the UK, Asia, Europe, the USA and Australia. The Company’s brands include A Star, B Stationery, Papercraft and Pepperpot. It has several subsidiaries, namely, International Greetings USA, Inc, International Greetings UK Ltd, International Greetings Asia Ltd, Artwrap Pty Ltd,  etc. With over 11,000 customers in more than 80 countries, IGR is the largest consumer gift packaging Company in the world.

On 15 June 2021, IGR will announce FY2021 annual results.

(Source: Company presentation)

Recent Trend of dividend payments – IGR paid an interim dividend of GBX 3.00 per share on 15 January 2021 with an ex-dividend date of 3 December 2020. It also plans to pay a final dividend for FY2021 in line with expectations. Further details about the dividend will come in its FY2021 results on 15 June 2021.

Growth Prospects and Risk Assessment

• Working with the winners: The Company collaborates with key customers over the world who continues to trade well and increase IGR’s market share. IGR’s enhanced e-commerce based activities result in rising top lines, and IGR would further invest in e-commerce. There is strong demand for IGR’s craft and creative play products in the US.
• Design & Innovation: The Company took key initiatives under its ‘Eco Nature’ brand, which resulted in cross-category sustainable solutions. There is also the rapid expansion of seasonal gifting products under the ‘X&O’ brand. IGR is also creating new designs for e-commerce offerings.
• Efficiency & Scale: The Company has a new state-of-the-art printing press in Memphis, the US. It is increasing its operational efficiencies by consolidating logistical facilities. Also, Robowrap investment in Europe results in productivity-related savings.
• Strong Order Book: IGR has a strong order book that was established in early FY2021. Driven by high sell-through rates seen over the 2020 festive period, the Company is building a stronger order book for FY2022.
• Acquisition of CSS: IGR is expected to further realize strong acquisition synergies from CSS, which was acquired on 3 March 2020.

(Source: Company presentation)

However, IGR’s performance could be significantly impacted by several significant risks, such as credit risk associated with the financial loss of customers and liquidity risk arising from fluctuating interest and exchange rates. The execution of a business plan could be impacted by the non-availability of a skilled workforce. The failure to achieve expected synergies from the CSS acquisition could impact both revenue and cost and there could also be rising restructuring costs. There could be further supply chain disruptions from any further wave of Covid-19 as the Indian variant of the virus is spreading in the UK and worldwide. It could also disrupt the safe operations of the Company. Additional costs could arise due to Brexit as there are further regulations. Overall, these risks could impact the growth trajectory of the Company.

After understanding growth prospects and risk assessments, we will analyze some key fundamental and shareholders statistics of IG Design Group PLC.

Recent Developments 

4 May 2021: With an immediate effect, IGR announced the change of its registered office to  Howard House, Howard Way, Interchange Park, Newport Pagnell, MK16 9PX.

30 April 2021: Effective 30 April 2021, Greg Hodder resigned as a non-executive director. 

Post Close Trading Update for the Financial Year ended 31 March 2021 (as on 20 April 2021) 

• Driven by realized synergies from CSS acquisition, IGR’s revenue was up 40% YoY at over $870 million.
• This led to strong cash generation for IGR. On 31 March 2021, IGR had net cash of over $76 million compared to $52.4 million net cash in FY2020.
• Driven by this effective cash management, IGR expects to achieve close to zero average leverage for FY2021. It also has banking facilities of more than $300 million.
• The Company plans to pay a final dividend for the financial year in line with market expectations.

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

(Source: LSE Website)

• The Company exceeded the market expectations in H1 FY2021. The top line was up ~41% YoY. This was driven partly by the CSS acquisition.
• This contributed to adjusted profit before tax rising ~16% YoY in H1 FY2021 as compared to H1 FY2020.
• IGR’s cash accretive operations and profit rise led to a significant improvement in net debt position, which reduced to USD 23.2 million in H1 FY2021 from USD 106.1 million in H1 FY2020. Average leverage also improved dramatically to 0.2x.
• IGR maintained the interim dividend at GBX 3.00 per share, which is the same as in H1 FY2020.
• Driven by this strong performance, the board is confident of exceeding expectations for FY2021.

Share Price Performance Analysis

 (Source: Refinitiv, Thomson Reuters)

On 18 May 2021, at 09:50 AM GMT, IGRs shares were trading at GBX 566.99, up by 0.71% against the previous day closing price. Stock 52-week High and Low were GBX 653.00 and GBX 390.00, respectively.

IGR's price is trading in a symmetrical triangle pattern for more than the past six months and currently trading around the lower band of the pattern, i.e. an upward sloping trend line, suggesting an upward trend for the stock. On the weekly chart, the leading indicator RSI (14-period) is trading at ~52.59 levels and indicating a positive direction. Prices are trading above the trend-following indicators 21-period SMA and 50-period, further supporting a bullish stance for the stock.

In the last three months, IGR’s stock price has delivered a positive return of ~12.60%; and it has outperformed the FTSE All-Share Household Goods and Home Construction index with a return of around 8.95% and the FTSE AIM All-Share index with a return of about 0.90%.

On the technical chart, the next important support level is at GBX 500.00.

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

Peers used in the valuation methodology (Price/NTM Earnings) 

Business Outlook Scenario

IGR has delivered a strong result for FY2021 with a top-line up 40% YoY driven by acquisition synergies. The Company has a solid customer base, enlarged e-commerce activities, a broad product portfolio, sustainable product lines and a strong order book going into FY2022. IGR has significantly reduced its net debt, achieving average leverage close to zero, indicating financial flexibility to raise further debt, if required, at a cheaper cost. This will help IGR to significantly invest in its e-commerce platform, which is a major growth driver. The management also strives to achieve further revenue and cost synergies from the CSS acquisition, which would be more than the original estimates.

The board expects significant YoY growth in both revenues and earnings in FY2022 based on these criteria. This growth plan will also meet the market expectations.

(Source: Company presentation)

Considering the decent prospects of the Company, solid existing portfolio of IGR’s business, further synergies from the CSS acquisition, decent profitability and leverage profile of the business, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on IG Design Group Plc at the current price of GBX 566.99 (as on 18 May 2021 at 09:50 AM GMT), with lower-double digit upside potential based on 17.89x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

*The dividend yield is subject to change as per the stock price movement.

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