IG Design is one of those firms whose products are found in most homes yet still flies under the radar. The stationery and gifts business produces more than a billion metres of wrapping paper every year, makes paper twist carrier bags for high street brands such as Schuh, brings out the kind of themed party wear that Instagrammers gorge over, and is one of the big players in greetings cards.
Alas for investors, shares in the Aim-listed stock,which rebranded itself from International Greetings in 2016, are down 80 per cent since 2018, when they exceeded £6. While there has been some recovery since the start of the year, IG Design is still changing hands at just £1.30. However, very early signs of a turnaround suggest that now could be a wise time to invest.
First, what went wrong? Covid didn’t help, of course, with all parties cancelled and most stores — IG Design is in 210,000 of them worldwide — closed. But also unhelpful in placating investors was questionable deal-making, including the purchase of two US firms for a total of almost £200 million between 2018 and 2020. Apart from being costly, that shopping spree left IG exposed to the whims of US retail giants and came just before soaring inflation and freight costs arrived to attack margins. This resulted in two profit warnings.
But since then, a new chief executive, Paul Bal, and new finance director Rohan Cummings, have refinanced a three-year $125 million (£100 million) banking facility, restructured the US business and cut net debt by $40 million. Some of this was made possible by the axing of the dividend. But the firm’s order book now looks decent at 62 per cent of budgeted revenues, while unprofitable contracts are being excised in the US. Results for the year to April showed the operating profit margin was at last rising, albeit just to 1.8 per cent and still miles off the 7 per cent margin seen before Covid. Still, the board restated its target for IG Design’s margins to hit pre-pandemic levels by 2025.
While sales, too, are still well off where they could be — down 8 per cent in the year — some of the red flags over IG Design are fading. The interest bill is now covered more than twice by operating profit, and an anticipated full-year loss was just avoided. Mark Photiades, an analyst at house broker Canaccord Genuity, backed the firm’s “good strategic progress in recent months” and raised his target price to £2.75.
There are plenty of caveats, but if the turnaround carries on, and the dividend once again approaches the 9p pay-out in 2019, the current share price will look a bargain. Take a deep breath — and buy.
