IG Design’s recovery gathers momentum

Gift wrap and stationery supplier IG Design (IGR) is now two-thirds of the way into a three-year turnaround drive that appears to be yielding the desired results. 

Prior to the pandemic, an adjusted operating profit margin of 4.5 per cent was the group’s norm – although this figure had fallen to 1.8 per cent by the end of FY2023. But as of 31 March, it has bounced back up to 3.9 per cent thanks to a near-doubling of adjusted operating profit to $31.1mn (£24.5mn). 

The decline in the group’s reported revenue was attributed to a 16 per cent drop-off in sales in its North American division, known as DG Americas. This reduction was seen almost entirely in the first half, when it seems consumers were less keen to spend on seasonal decor and gift packaging items. IG was also exposed to a degree of risk from retailers in distress, who may have restricted credit terms or amended payments in certain instances.

Revenues in the group’s other division, DG International, which accounts for about one-third of sales, were only marginally higher than last year. Weakness in the UK and Australian markets was partly offset by volume progress in Europe. However, the unit’s adjusted operating profit was up 63 per cent to $32.3mn thanks to a number of operational overhauls.

Self-help measures included the release of surplus warehouse space as well as a simplification of the business model. “Taken together, these actions have reduced the physical footprint, headcount and cost base, thereby rendering the business more competitive,” said Liberum analyst Wayne Brown.

We’d argue this progress is fully realised in the group’s current forward price/earnings multiple of 12.5 and await further signs of recovery, including the restoration of the dividend. Hold.

Last IC view: Hold, 145p, 28 November 2023