IG Design Group – A Bargain Opportunity?

After recent results, this company’s shares have fallen back by over 17% to a level at which I now reckon that they are too cheap to be missed.

The Newport Pagnell-based IG Design Group (LON:IGR) designs, manufactures, sources, and distributes a range of products for occasions across the globe.

Better known as the Design Group, it works with over 11,000 retailers across the globe, providing award-winning service.

It sells some 1.3bn products annually, helping consumers celebrate every special occasion, all year round, and inspiring their creativity.

Each year, its ‘Celebrate’ and ‘Create’ products are there in millions of special moments.

As one of the leading manufacturers of celebration products worldwide, its ranges include gift wraps, greeting cards, Christmas crackers, gift bags, and partyware.

Its ‘Create’ products spark imagination, foster creativity, and encourage learning, to help consumers of all ages express themselves and build new skills.

This category includes creative play products and games, stationery, diaries, albums, picture frames and design-patterns

The Business

The company works with retailers, offering a full end-to-end service from design through to distribution.

It manufactures and distributes celebrations, craft and creative play, stationery, gifting, and not-for-resale consumable products.

Its segments include DG Americas and DG International.

The DG Americas segment includes overseas operations in Asia, Australia, India, and Mexico, being the overseas entities of United States companies.

The DG International segment comprises the consolidation of the separately owned United Kingdom, European, Asia and Australian businesses.

Own Brands

As well as creating bespoke product ranges for its retail partners, Design Group also owns several established and recognised Celebrate and Create brands.

Its brands include Tom Smith (recognised as the brand that invented the Christmas Cracker some 175 years ago, Tom Smith has been a traditional part of festive traditions for generations of families since 1847).

Other brands include Simplicity, Kids Play, sewdirect, giftmaker collection, eco nature, The Gift Wrap Company, Home Collection, perler, Anker Play, BLOKKO, Biscay Greetings, artwrap, Boye, PaperCraft, Adventure Club, Vogue Patterns, Lang, and Butterick.

Sales Per Business & Per Region

Sales are as follows: Celebrations 59.9%, Craft & Creative Play 16.9%, Gifting 10.9%, Not-for-resale Consumables 7.2%, and Stationery 5.1%, and regions with Americas accounting for 66.6% of group sales, and International 33.4%.

The group sells in over 79 countries globally.

Management Outlook

On 25^th June on announcing the end March results, Chairman Stewart Gilliland stated that:

“I am proud to share another year of success on the Group’s journey to restore its profits, margins and financial strength, whilst also building a more resilient business model.

The year has also seen the start of balancing our focus on the recovery journey with establishing a longer-term strategy to return the Group to sustainable growth, which is requiring a lot of consistent effort from everyone across the organisation.

So, I would like to thank my colleagues throughout the Group for their hard work in delivering this year’s strong results and the progress on our strategy.

With an invigorated senior leadership across the Group, our financing secured and a strengthened and stable Board, the Group is well-set to complete its recovery over the coming year; and embark on an exciting growth-focused strategy for the years beyond.

Whilst the global political-economic backdrop could be better, the continued support of our customers and suppliers, who are working closely with our talented teams, positions us well to deliver better shareholder value.

Finally, I thank our shareholders for their continued patience and support as the business re-positions itself for growth off a more resilient foundation.”

The Equity

There are some 101.28m shares in issue.

Larger holders include Anders Hedlund (23.32%), Canaccord Genuity Wealth (14.78%), FIL Investment Advisors (9.33%), FIL investment International (6.24%), BennBridge (5.11%), Rowan Dartington & Co (3.98%), International Greeting ESOP (3.08%), Rowan Dartington (Broker) (2.69%), LOYS AG (2.54%), and Kabouter Management (2.54%).

Brokers’ Views

Analyst Mark Photiades at Canaccord Genuity Capital Markets rates the group’s shares as a Buy, looking for 325p a share in due course.

His estimates for the current year to end March 2025 are for $825.0m ($800.1m) sales, with adjusted pre-tax profits jumping nearly 40% to $36.0m ($25.9m), helping to generate earnings of 24c (16c) and enabling a dividend of 6c (nil) per share.

For the next year he goes for $855.0m revenues, with $43.0m profits, 28c earnings and 8.1c per share in dividend.

Further down the line Photiades looks for the year to end March 2027 to produce $900.0m sales, $50.0m profits, 33c earnings and 10.1c dividend per share.

He notes that given the group’s management’s confidence in delivery of a record group PBT outcome in the current year, largely through self-help margin and cost actions, he believes the recent price reaction post results (-17%) highlights a further buying opportunity.

The analyst concludes that the current valuation looks anomalous and compelling given the improving margins, combined with forecast cash generation and a strengthening balance sheet.

At Progressive Equity Research its analyst is David Jeary, his estimates are fairly similar to Photiades.

Jeary notes that profitability and earnings grow at a much faster rate than the top line, reflecting further benefits from the group’s self-help initiatives alongside positive operational gearing.

He is estimating that over the three years to 2027 the group will show a compound annual growth rate in its fully adjusted pre-tax profits of 24.5% – that really is a quite impressive rate.

Three analysts follow the group, each rating the shares as a Buy – with an average Price Objective of 302p

My View

A CAGR of 24.5% over the next three years is good enough for me.

At the start of 2020 this company’s shares were peaking at almost 800p each.

Since then, it has been in a state of corporate repair, especially over the last couple of year, with its Management’s remedial actions beginning to show through quite beneficially.

Three weeks ago, the £198m capitalised group’s shares hit 240p, before easing back to a 182p low in the middle of last week.

Now at 197p they look to me to be an excellent purchase for investors taking both a short-term and medium-term view.

I now set a Target Price at 245p, which could well be achieved before the group’s AGM in mid-September, if not soon afterwards.