IG Design Group PLC (LON: IGR)

IG Design Group Plc is an FTSE AIM All-Share listed consumer gift packaging company founded in 1978 and headquartered in Newport Pagnell, the United Kingdom. IGR was previously known as International Greetings Plc. It was renamed in June 2016. 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.

Recent trend of dividend payments

In FY2020, IGR paid a total dividend of GBX 8.75 per share. In FY2021 also, the Board plans to pay a total dividend of GBX 8.75 per share. The next dividend of FY2021, GBX 5.75 per share, would be paid on 14 October 2021 (final dividend). It has an ex-dividend date of 9 September 2021.

Growth Prospects

• CSS integration: So far, the CSS acquisition has integrated well with IGR’s operations, with synergies exceeding expectations and delivering great value. In FY2022, it is expected to contribute to significant growth for IGR.
• Grow with customers: The Company collaborates with key customers around the world, who continue to perform well and drive IGR’s growth. In general, the top 20 customer store growth averages 3% per annum. IGR considers its top 20 customers as a ‘one-stop partner’ across regions, channels, and categories. The Company is expanding its product base with its existing customers and further investing in its Omni-channel capabilities.
• Strong order book: IGR has a strong order book for FY2022. Already, its order book exceeded 60% of the FY2022 forecast. Higher-than-normal sell-through levels during the festive period should provide a positive tailwind to the order book.
• Product categories and product mix: The Company is enjoying strong momentum in its craft and creative play categories. Also, design group brands in FY2021 contributed 40% of revenue. The Company invests in capital projects which offer fast payback. The management strives to optimize product mix and SKU management to improve margins. Driven by the growth initiatives, design group brands are expected to deliver more than 70% growth for IGR.
• Sustainability: In FY2021, IGR launched its sustainability framework, named 'helping design a better future'. It follows the United Nations’ sustainable development goals. IGR strives to achieve sustainable product and packaging, elimination of single-use plastics, and reduction of carbon emissions. Hence, these initiatives could help the Company to expand its customer base further.

Key Risks 

• Supply chain risk: There could be delays in the supply chain due to the spread of the delta variant of Covid-19. It could also reduce profitability both in the short and long term.
• New regulations due to Brexit: Brexit leads to further regulations. Hence, additional costs could arise to comply with those regulations, impacting the margins of the Company.
• Increasing health-consciousness of customers: Worldwide, customers are becoming more and more health-conscious. Hence, any failure to promote sustainability and lower carbon emission could pose reputational risk and loss of customers.
• Failure to achieve the desired synergy from acquisitions: Merger and acquisitions is a significant driver for IGR’s growth plans. Hence, any failure to achieve expected synergies from an acquisition could seriously dent IGR’s growth prospects.
• Financial risks: There are several financial risks that could affect the margins of the Company. These risks include credit risk associated with the financial loss of customers and liquidity risk arising from fluctuating interest and exchange rates.
  

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

Recent Developments

Changes in Board: On 5 July 2021, the Company announced that it had appointed Stewart Gilliland and Clare Askem as Non-Executive Chairman and Non-Executive Director, respectively.

Financial and Operational Highlights (for the year ended 31 March 2021 as of 15 June 2021)

(Source: LSE Website)

• IGR in FY2021 achieved the sale of over 100,000 SKUs, driven by strong product and channel development.
• Driven by realized synergies from CSS acquisition, IGR’s revenue was up ~40% YoY to $873.2 million in FY2021.
• This surge in revenue resulted in adjusted profit before tax rising ~4% YoY in FY2021.
• However, due to an increase in the number of shares after the equity raise related to the CSS acquisition, diluted earnings per share was down to 8.4 cents per share in FY2021 from 19.8 cents per share in FY2020.
• On a positive note, an increase in earnings and the Company’s cash-accretive operations led to strong cash generation for IGR. In FY2021, IGR had net cash of $76.5 million compared to $52.4 million net cash in FY2020.
• Driven by the strong cash generation, the Company would pay a final dividend of GBX 5.75 per share, in line with market expectations.
• In FY2021, IGR launched its sustainability framework, named 'helping design a better future'.

Financial Ratios (H2 FY2021)

 Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 20 July 2021, at 7:30 AM GMT, IGR’s shares were trading at GBX 500.00, down by 0.79% against the previous day’s closing price. Stock 52-week High and Low were GBX 653.00 and GBX 390.00, respectively.

On a daily chart, the momentum indicator RSI (14-period) is trading at ~34.07 level and moving towards the oversold zone, indicating the possibility of an upward movement.

In the last five years, IGR’s stock has delivered an excellent return of ~174.66%. Also, it has outperformed the FTSE All-Share Household Goods and Home Construction index with a return of around 5.22% and the FTSE AIM All-Share index with a return of about 64.15%. 

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

Business Outlook Scenario

IGR delivered a resilient performance in FY2021, with revenue surging ~40% YoY. The CSS acquisition delivered synergies that exceeded expectations. Furthermore, the Company has a strong business model characterized by its working with the winning customers and product categories, which provides further confidence for FY2022. The Company could benefit from its CSS integration, its continuous growth driven by the growth of its customers, its strong order book, its product categories and product mix, and its sustainability initiatives going into FY2022. The management anticipates significant YoY growth with double-digit EPS growth. The Board is confident that the Company is well placed to deliver solid revenue and profit growth.

Considering the Company’s strong business model, its resilient performance in FY2021, its focus on new acquisitions, its collaboration with winning customers, 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 500.00 (as on 20 July 2021 at 7:30 AM GMT), with lower-double digit upside potential based on 21.06x 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.

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

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

*The reference data in this report has been partly sourced from REFINITIV.

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