Interactive Investor

Shares up 20% as this UK firm springs positive surprise

19th July 2022 15:59

Graeme Evans from interactive investor

Despite what you might read, there’s still plenty of work around for the right company, as demonstrated by this £600 million British business.

A material profits upgrade by FTSE 250-listed 4imprint Group (LSE:FOUR) today suggested that corporate America is in robust health, even as Apple (NASDAQ:AAPL) mulls a move to rein in spending.

The Manchester-based business generates 98% of its revenues from the US and Canada, where it boosts marketing campaigns by supplying branded products ranging from basic giveaways such as pens and mugs to embroidered apparel and trade show displays.

An unscheduled update today revealed stronger-than-expected trading momentum, with its order count for the first half of the year up 14% on the sale pre-pandemic period.

Shares jumped 505p to 2,945p, but brokers at Peel Hunt and Liberum see potential for further outperformance and have price targets of 3,900p and 4,000p respectively.

The stock had been trading at above 3,000p before the onset of the pandemic wiped out demand, leaving shares at 1,560p in March 2020.

Buoyed by this year’s reopening of the US economy, the company is now increasingly confident it will meet its $1 billion (£830 million) annual revenues target earlier than expected and during the current year.

Its guidance for 2022 operating profit is also “materially above” the consensus of analysts' forecasts and will be not less than $75 million (£62.4 million).

However, the company also recognises the “considerable uncertainty” of geopolitical and economic factors, including the threat of recession. “These factors could affect the group's performance during the remainder of 2022”, it warned.

A chill went through markets yesterday when a report by Bloomberg said Apple intended to pull back on hiring and growth spending next year in anticipation of an economic downturn.

The speculation provided another stark reminder of the fact that corporates could soon be feeling the squeeze against a backdrop of high inflation and tightening margins.

For now, 4imprint has continued strong momentum among its North American customers after trading since May accelerated to leave half-year revenues 30% higher than 2019.

Peel Hunt said: “If trends persist into the second half, we could see further outperformance. On top of this the company has a healthy amount of net cash on the balance sheet.”

The shares are currently trading on a multiple of 13 times forward earnings, which represents a 30% discount to its pre-pandemic long term average.

The broker added: “Despite a cautious tone from management for the rest of the year, 4imprint is clearly bouncing back from the pandemic stronger than ever.”

Liberum increased its full-year earnings forecast by a third and lifted its target price by 200p, noting the benefits from dollar strength against sterling.

The broker highlighted the potential for a special dividend based on its new forecast for full-year net cash of $77 million (£64 million). It pointed out that 4imprint last declared one in 2018 after reporting cash of $31 million.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.