Purchase of International Greetings (IGR)
What do they do? International Greetings plc is a United Kingdom-based company, engaged in the design, manufacture and distribution of gift packaging and greetings, stationery and creative play products. The Company operates through four segments: the United Kingdom and Asia, Europe, the United States of America and Australia. Its gift wrap products can be supplied with accompanying coordinated accessories, which include bags, tags, ribbons and bows, and crackers. Its range of stationery products includes pens, paper and filing, among others under its brand A star Stationery. Its b. original & b.inspired product range include notebooks, project books, study books, jotters and journals. Its Kids Create brand products include coloring, drawing and children's activity products. The Company's other brands include Tom Smith, Hoomark, Paper Craft, pepper pot, Giftmaker, The Gift Wrap Company and gifted, among others. The Company sells its products in over 100,000 stores in approximately 80 countries.
I have been watching IGR for a few of months now and gradually getting to like what I see. Going back to the period January 2014 to April 2015 the shares traded at 77p roughly plus or minus 10p nothing terribly exciting as the company strove to find its way after a disastrous period coinciding with the banking crisis that saw the shares tumble by 95% over an eight month period. International greeting was historically a name familiar to me as I had bought and sold the shares over the period 2004/2005. Over recent tears the company had lost its way to some extent but during 2015 things have taken a turn for the better. In fact pre-the interim results announced on 2nd December 2015, the shares had had a phenomenal rise of about 140% in this financial year to date.
Looking at the numbers I rather like what I see but of course after such a brilliant run you tend to ask yourself have I missed the boat or is there more to come? It was not that long ago when I asked myself the same question with Dart Group which had enjoyed a spectacular 12 months October 2012 to October 2013 in rising 200%; would I be foolish to invest? We I did invest in Dart at 225p and they have since given me a very enjoyable 160% rise. So for me, the message is a clear one, if I believe in the current overall quality and value of the business then I will certainly research it further as a potential purchase. I will not be put off because of recent exhilarating performance. I will of course weigh in with a little witchcraft in the form of a little technical analysis; maybe asking if there has been an advantageous pull back that may offer an attractive entry point.
I am whittling on, apologies, so on getting back to IGR what do I like about the current business we see in December 2015?
Well let’s start with cash flow; I have virtually no interest in any business that does not make profits and taking things a stage further, limited cautious interest in a business that cannot convert profits into decent cash-flow. What gives me comfort is really decent Free Cash Flow and with IGR they score well in that department since their recovery has been under way.
Looking at some quality measures, the profit margin whilst nor being outstanding at the current 5%, has been gradually increasing over the three year period which included YTD. Over the same period the ROCE has been 9.1, 11.0, 13.0. The rise in the CROCI has been impressive for the full years 2013@ 4.5, 2014@ 9.9 & 2015 @ 14.7; that looks good to me and is appreciating each year. Oh, yes, best not forget the PE(f) @ 13.8.
Over the years Prof Piotroski has been a good aid to me. Possibly the good Professor may have blinded me to some profitable investments but on the other hand I feel certain that the good professor has reduced my exposure to foolhardy risk. The Piotroski score for IGR is a very healthy 8 and again that gives me some comfort.
The dividend is rather small currently at 1.5% but it is easily covered by conventional dividend cover and turning to the measure I prefer, massively covered by the FCF. It looks to me as if there will be opportunity for IGR to up its dividend fairly easily in the future. Additionally the current ratio is fine and the interest cover good and there is no pension deficit.
Having a look at recent director speak, we have the outlook statement from the most recent interims released on 2/12/15:
Overall trading activities are in line with expectations with a strong order book in place for the balance of FY2015/16 and already beginning to build for FY2016/17.
Our focus on excellent and highly commercial design, customer service and innovation, continues to deliver margin and profit growth.
We are on course to achieve targeted growth in underlying earnings per share and remain firmly focused on reducing leverage through converting profit into cash, whilst continuing to identify and implement fast pay-back investments and delivering ever improving shareholder returns.
Chief Executive Officer
There is also a very interesting article in the Telegraph form Monday 21/12/15 which gives both historic and current pictures of the business; an extract below:
So where next? “The US is the biggest opportunity for International Greetings,” says Fineman. Admittedly, it already has a big business there, enjoying a 12pc share of the gift packaging market and supplying retailers such as Walmart, Target and the Dollar stores. It also makes gift wrap from a factory in the southern US state of Georgia. But because it’s so large and fragmented - America’s regional players are as big as Britain’s national retail chains - there is still “an awful lot to go for”, says Fineman, both through organic growth and acquisition-led expansion. “We have a small share of a massive market,” Fineman explained. “We have a new US chief executive and are excited because we can see momentum there. For the first time in a number of years we are working in the business, rather than on the business.” What’s more, Christmas crackers are growing popular in the US, but not just for the Yuletide season. Through canny marketing, IGR has been selling crackers as festive ways to celebrate other occasions, such as baby showers and birthdays. Already this year, Costco in the US has sold out of IGR's crackers. Fireman says gift bags also offer huge growth potential. This year, the company will make just over 19 million bags - more than double last year's sales - and will offload 40 million globally. Fineman is also eyeing opportunities to make acquisitions that will launch IGR into a new segment of the bag world, such as shopping bags for stores. He also says there is scope to snap up companies that haven't been able to afford to upgrade their equipment, “We are far from perfect now and we can still improve. But when you have the right team in place you feel confident to make acquisitions," he said. “With the amount of cash we are generating we can invest in people, equipment and look at fast payback acquisitions and to grow the dividend, all while cutting debt."
On the financial side, Fineman's target is to achieve double digit growth every year for the next three years across the company and to boost the net profit margin from 5pc to 8pc by 2018/19. He added: “We are in the best shape we’ve been in for a number of years, but I am in no way complacent."
The link to the full telegraph article:
Now just to add a little more confidence I usually have a look at the Stock Rank numbers on Stockopedia and also the Sharelockholmes market ranks. We have Stockopedia Stock Rank of 98 and a Sharelockholmes market Rank of 3. Note: Sharelockholmes has 1 as its most attractive value so to compare with the Stockopedia Stock Rank we take the Sharelockholmes market Rank of 3 from 100 giving a value of 97. So in conclusion both ranking systems rate the stock very highly and again that’s very comforting.
So finally applying a little of the TA witchcraft and noticing that the shares had stabilised following a few days of pull-back after the interims, I bought an initial holding in IGR on 22/12/15 at 174p and with the information available to me at present, intend to hold for a couple of years that is unless something horrible and unforeseen arises.
As ever please note that the above is most definitely not investment advice but just my thought and reasoning process that I followed through before making this purchase. Also not all of my purchases turn out to be a successful investment.
Since the mid 90’s I have taken advantage of those lovely tax-free stock purchase shelters PEPs & ISAs. The PEP was originally brought in by Nigel Lawson in 1987 at a time when his soon to be domestic goddess daughter Nigella was 27 and you could buy a pint of Abbot Ale for 70p.The original allowance or limit was a measly £2400 which increased over the years reaching £9000 when Norman Lamount added in the £3000 single company PEP. In 1999, our Gordon replaced the PEP with his ISA concept with a cap of £7000. In 2004, our Gordon is feeling a touch mean and decides that ISA and PEP managers are no longer allowed to reclaim the 10% tax credit attached to dividends. This leaves ISA investors £10.00 worse off for every £100.00 gross dividend paid.
Progress has been made bit by bit and the allowance this year is, of course, £15,240 for the current financial year.
Whilst I am more than happy to self-select my own stocks within the bulk of my investments, I do like a class act when I see one and for the two years, 2013 and 2015 invested my allowance with the classy Fundsmith. Now as I have mentioned before on this blog, Fundsmith is run by Terry Smith the man whose book Accounting for Growth published in the early 90’s blew the lid on accountancy fiddles that massaged earnings for some companies.
Fundsmith invests in equities on a global basis. The Company's approach is to be a long-term investor in its chosen stocks. It will not adopt short-term trading strategies.
The Company has stringent investment criteria which the investment manager adheres to in selecting securities for the Company's investment portfolio. These criteria aim to ensure that the Company invests in:
Since inception on 1/10/2011 the fund has increased in value from 100p to the price at the time of writing 222p and outstripped the FTSE 100 total return somewhat which would have converted your 100p into 122p, so you can see my concept of a few £k in a lazy money fund operated by a high quality manager.
The fund has performed very well for me but it is boring and although I do like boring, this one is exceptionally boring even by my standards. I will therefore probably leave the ISA contributions at the current two years worth with reasonable confidence that if I totally cock up other investments myself, which I don’t plan to do, then I will have a few bob to buy my season ticket at Luton Town: told you I like boring!
We all have different ways of searching for that next purchase and it can be a very varied an individual approach taken by any population of investors. My approach has been honed over 25 years and may seem a little odd to some investors but it works for me and is one I feel comfortable with: I thought it was worth adding to the blog.
Firstly things I don’t do:
I no longer subscribe to magazines, in the past I used to take Investors Chronicle and Shares Magazine and to a point especially in my formative years of investing, they were of some use. After a while, you find that the same concepts are being churned time and again. In terms of their tips, well as the pair cover about half of the entire market in a year they have to be right some of the time. Similarly Newspapers: can’t remember the last time I bought one or even looked at a tip from one of them. When it comes to news it seems a fact that in this modern age newspapers should be titled recent history papers as the internet keeps us up to date so rapidly.
When I first started investing seriously in the early 90’s I used to suck up all of the information I could from a large number of tip sheets. The cost was not overly bad as it was shared between the twelve members on an investment club and I think money spent wisely at the time for a group of newbie’s. Ones I recall are The Analyst, Chart Breakout, SCSW & Technivest: today and for many years I have not subscribed to any; just don’t see the need. I even went to a talk in London given by the founder of the Analyst magazine where Blacks Leisure and JJB as lifetime holds; enough said!
Another one I do not do is take any notice of the rubbish written on BB’s by those folk in the know. I find BB’s are often populated by serious rampers who use the classic pump and dump or just don’t have a clue what they are talking about, so once again not for me.
For many years I used to begin my morning by listening to wake up to money with the genial Mickey Clarke, always amusing but prone to spread panic more than calm with the various guests on the show; now days not for me. They had some good journalists’ and some absolutely crap experts on that show!
So there we are, a list of stuff I don’t do as I find this stuff simply clouds my vision: without being pompous why should these 100’s of tips be any better than the research that I carry out; I do doubt myself of course and realise that I won’t get everything right and will make mistakes.
Secondly, Things I Do To Find My Information:
Well, that’s affair list of things I do not do. Now onto where I seek my information that aids my whittling:
For a start and I would suggest that all investors do this, I try to analyse and understand personality as I think it’s vitally important as an investor to understand yourself, what you comfortable with, what you are not comfortable with, how patient you are, how you perceive and handle risk. For myself, I know that I am not nor could ever be a day trader or somebody who would take a punt on a share, try to catch the falling knife etc. I know I am reasonably patient and understand what allows me to sleep at night.
Turning to getting the raw data itself, I use three or four sources of easy information: SharePad, Sharescope, Stockopedia and Sharelockholmes. Each of these has a whole wealth of information and also enable one to customise your screening methods as well as in the case of Sharescope offer valuable and easy access to technical analysis; what a grand term for charting! If I were to be asked if I relied on fundamental analysis or technical analysis I would have to say a combination of both with a 75% bias to fundamental analysis.
Turning to company information and RNS; each day at 7 am I go to the Investegate site and take an early view on company results and trading updates. Deciphering the important stuff from the mundane is made somewhat easier by using the phrase add-on facility in Firefox. I may then put out a few notes and thoughts on Twitter. Whilst mentioning Twitter, I should say that I find generally there is a whole bunch of very helpful private investors out there willing to share thoughts.
Also, I have to say that I could not finish a private investor blog discussing resources without mentioning the fact that there are some wonderful blogs out there written by PI’s. These investors give their time freely to honestly and helpfully give their thoughts, methodology and education to our investment community.
I mentioned a couple of weeks back about the measures I use to give me a view on how I am actually doing with my portfolio. As I said at the time I use a fairly tough benchmark to measure my performance against:
FTSE All Share TR: epic : ASX.TR
Fundsmith Equity T Acc: epic: FUEQUI: manager Terry Smith
Marlborough Special Situations: epic: FMCIAL: manager Giles Hargraves
Henderson Smaller Companies IT: epic: HSL: manager Neil Hermon
I should say that I don’t take particular notice of overall portfolio performance on a daily or even weekly basis; in fact, I probably am a touch laid-back in my tracking and find that monthly is about right for my personality. Everybody is different and as such variety makes the world an interesting place but as I say for me, monthly is about exciting enough.
Having said that, I do keep a very close eye on company announcements and sieve through items of interest every morning at 7:00am before heading off to the swimming pool for the daily mile ahead of breakfast. I don’t tend to look at market movements until about 9:30 or even 10:00 that is unless an earlier RNS has prompted some portfolio action on my part.
Back to measures; I use two time frames. Firstly a rolling 12 months performance and secondly a financial year to date performance. Just to give a flavour of how this looks, I have listed the stock whittler portfolio performance against the various benchmarks/comparators for the rolling 12 months, 30/11/14 to 30/11/15 and FT to 30/11/15:
Stock Whittler portfolio:Rolling 12 months +14.2%: FY to 30/11/15 +11.2%
FTSE All Share TR: Rolling 12 months +0.64%: FY to 30/11/15 -3.2%
Fundsmith Equity T Ac Rolling 12 months +13.8%: FY to 30/11/15 +7.4%
Marlborough Spc Sit: Rolling 12 months +19.3%: FY to 30/11/15 +15.2%
Henderson Sm Co’s IT Rolling 12 months +21.5%: FY to 30/11/15 +13.0%
Whilst I am very happy to be ahead of Fundsmith over the two periods, it is still a challenge to get close to the excellent Marlborough Special Situations and the Henderson Smaller Companies IT. Targets in my view should always be challenging and these two are indeed a challenge.
I do hold an appreciable lazy investment in Fundsmith and also a modest investment in both the Marlborough Special Situations and Henderson Smaller Companies IT. The above performance of my Stock Whittler portfolio excludes any contribution from the three funds/IT mentioned above. I appreciate that that my portfolio may be leggy by some investors standards with usually around 40 stocks held but it keeps me amused.
I don’t anticipate updating performance on a regular basis, I just though a flavour of my approach may be of interest.
Cheers for now.
Welcome to my Blog Page - I hope you find my whittling on to be of some interest. I am a private investor who is happy to share thoughts on the market and individual stocks. Please remember that I am definitely not offering tips or investment advice.