MIDAS SHARE TIPS: It's Christmas every day as gift-wrap and greeting card giant IG Design cuts reliance on the festive season

By JOANNE HART FOR THE MAIL ON SUNDAY

Updated:

In 2005, IG Design Group (then known as International Greetings) was valued on the stock market at about £240million and was making annual profits of more than £16million.

Less than three years later, the group’s value had crashed to just £6million, it was loss-making and was almost buried beneath a mountain of debt.

Today, IG Design has returned to rude health. The road to recovery has been long and tough-going, but prospects are now extremely bright. The stock has done well in recent months, but the company is only valued at £133million and the shares, at 218½p, should prove rewarding.

What a cracker: IG Design, under the direction of Paul Fineman, is the world¿s largest maker of Christmas crackers
What a cracker: IG Design is the world¿s largest maker of Christmas crackers

What a cracker: IG Design, under the direction of Paul Fineman, is the world’s largest maker of Christmas crackers

IG Design is the world’s largest maker of Christmas crackers and numbers the Queen among its festive customers. The group also makes gift-wrap, greetings cards (hence its original name), gift bags and stationery. There is a thriving children’s business too, with products such as colouring books, finger paints and stickers, 750 million of which were sold last year alone.

IG’s biggest customer is the cut-price international retailer Costco, but it also supplies major UK supermarkets including Tesco, Aldi, Lidl and Waitrose, as well as US giants Wal-Mart and Target.

Initially a UK-focused business, the company now derives a third of its sales from Britain, with about 40 per cent coming from North America and the rest from the Continent, Mexico and Brazil.

Much of the company’s international expansion and its move into a broader range of products came about under the direction of Paul Fineman, who became chief executive when the group was at its low point in 2008.

Fineman joined IG three years earlier when it bought his family’s business, stationery group Anker International. Now 57, Fineman joined Anker at 19 and has worked in the gifting and stationery market ever since. His strategy has been clear from the moment he took the helm at IG – to reduce the debt mountain and create a more balanced company, less reliant on cards and Christmas.

Today, that work is almost done. The debt is well under control and shrinking rapidly each year. Cards account for less than 9 per cent of the business and, though Christmas generates half of IG’s sales, the company sells a wider range of products in 80 countries. Fineman has also shifted the product range downmarket.

Happy days: IG Design, which also makes stationary, has returned to rude health

Happy days: IG Design, which also makes stationary, has returned to rude health

IG sells 500million products a year to retailers at an average price of about 55p, and these are usually priced in shops at between £1 and £2. This segment of the market is more resilient than more expensive categories, so even if economic growth stagnates, demand for IG’s products should persist.

 To ensure that the company can make money despite charging low prices, efficiency and economies of scale are crucial, so Fineman has invested in state-of-the-art equipment to produce goods as quickly and cheaply as possible.

The group has manufacturing plants in The Netherlands, Wales, China and the US and has modernised the European ones first. These produce 45 miles of wrapping paper an hour, one of the fastest gift-wrap production lines in the world.

Looking ahead, Fineman is determined to expand IG’s American business. The group already has a decent foothold in the region, but the US is the biggest market in the world for gift products and children’s stationery, so the potential for growth is huge.

A two-stage investment process is under way to upgrade US manufacturing and this should be complete by early next year, enabling IG to make goods faster and cheaper.

IG sells 500million products a year to retailers at an average price of about 55p

IG sells 500million products a year to retailers at an average price of about 55p

At the same time, IG is keen to sell a wider range of goods to existing customers and to target new ones, particularly regional retailers, which typically own about 1,000 stores each – about the same number as many national UK shopping chains.

Last month, the firm bought a small US giftware company, Lang, for $3.6million (£2.75million), which does not just sell to shops but also directly to consumers via its own website. Over time, IG may use this business to develop its own e-commerce service.

There are also a few areas where IG is not focused on the value end of the market. It has recently started making smart carrier bags for designers such as Kurt Geiger and J.Crew, and this division is growing rapidly.

Brokers are optimistic about the company, expecting it to deliver a 13 per cent increase in sales to £269million for the year to March 31, 2017.

Profits are expected to rise by 14 per cent to £12.3million, with an extra 20 per cent climb to £14.8million in 2018. Following the near collapse of the company around the time of the financial crisis, IG stopped paying dividends. It has since restarted, but has adopted a cautious approach, paying out 2.5p for 2016, while 3.5p is forecast for next year. 

Over time, Fineman is expected to become more generous, suggesting that dividends will increase at a faster pace than profits, even as profits themselves pick up pace.

Midas verdict: IG Design Group has come a long way over the past eight years, but there is still a lot more mileage in the company. Fineman knows what he is doing and the outlook is strong. The company should also benefit if sterling stays weak against the dollar. Buy.

 

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