4imprint Group is mostly a US business that happens to be listed on the London Stock Exchange; it was founded in 1985 as Nelson Marketing in Indiana.
4imprint Group is a supplier of branded promotional products that are given away by companies to employees and potential or existing customers. These could be flasks, sweatshirts or screwdriver sets branded with their customer’s logo.
4imprint Group designs, markets and sells the products, however the products themselves are manufactured, branded and distributed by third party suppliers.
4imprint Group is by far the market leader in selling to SMEs and has consistently grown its market share over time because of the company’s very strong competitive advantages that are mostly related to scale.
The business offers a wider range of products to its customers than its peers. Additionally, because of the company’s significant purchasing power in a fragmented supply chain it can sell these products at very competitive prices. It is also the only business in its industry large enough to advertise on national television. Despite this strong position, the company’s market share is only 5% in this very fragmented industry, leaving plenty of runway for further gains. In contrast to many high growth businesses that consume cash, 4imprint Group’s capital light model has a history of generating free cash flow growth in excess of sales growth. The long tenured management team have a
strong track record of operational execution and capital allocation.
We have owned the shares since 2015. When we initiated our holding in 4imprint Group, we believed that the shares were out of favour and undervalued because based on the company’s history there was a misperception that it was a cyclical business with an onerous pension scheme. However, we discovered that the business had largely addressed these concerns. A shift in the marketing mix away from paper catalogues meant that the company could now be much more responsive in cutting costs if it saw a deterioration in demand. In addition, the management team used the company’s prodigious cash generation to strengthen its pension position. Since purchase the company’s sales have compounded at over 13% pa, well in excess of the industry.
With more focussed marketing, profit margins have expanded
significantly. Dividends have grown and the company’s valuation has rerated to a more appropriate level. 4imprint Group has rewarded us with a total return over 800% over the last 9 years.
We think there are plenty of growth opportunities left for the
company to pursue in the years ahead
