Stock Pitch: Will IG Design Keep Rising?

3rd Sep by Roland Head

8 comments 1861 reads

AIM-listed gift packaging specialist IG Design (LON:IGR) was a major multi-bagger over the decade leading up to the pandemic. I remember ruling out the stock as being too expensive, only to see the shares continue rising.

Between January 2010 and January 2020, IG Design’s share price rose by 880% to more than 700p – before collapsing to less than 50p in 2022.

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A successful turnaround has seen the stock recover to trade around 200p. The valuation looks moderate to me and management are confident they can deliver further improvements in profitability, plus organic growth.

While I don’t expect IG Design’s share price to return to the record highs of 2019, I do think the shares have the potential to deliver meaningful gains from current levels, as I’ll now explain.

Summary

Pros:

IG Design is one of the biggest players in this sector and supplies some of the world’s largest retailers
The company benefits from economies of scale and may find it easier to meet growing customer demand for near-shored products than smaller suppliers will do
The founding Hedlund family retains a 20%+ shareholding. I’d hope this provides some protection against risky M&A and lowball takeover bids

Cons:

This is a low margin business with limited pricing power and critical dependence on seasonal sales. If unexpected costs arise, profits can collapse, as happened in 2022/23.
Two-thirds of revenue comes from the group’s top 20 customers, many of which are in the USA. IG Design is thus heavily dependent on a handful of large customers and US consumer demand.
The company’s markets are fairly mature – management estimates long-term growth rates of c.2.5%. To achieve stronger growth, IG Design may need to win market share from rivals. Growth potential could be limited without further M&A.

Profile

About the stock

IG Design is a manufacturer and supplier of gift packaging and products for occasions. It’s listed in the Containers & Packaging industry group within the Basic Materials sector.

The company floated on the London market in 1995 and is currently a member of the AIM 100 index, with a market cap of £184m and a recent share price of 194p.

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IG Design…

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John LA

3rd Sep

Excellent analysis, I've held in past on my watchlist

eParo

Is strength of £ a concern? Also shipping costs have risen sharply in recent times as reported by many importers from China.

piersmahoney

According my research (IG Design (LON:IGR) average PSR since 1997 has been 0.70, and currently stands at 0.31

In addition, it's average PBV since 1997 has been 2.36, and now stands at 0.71

Should the above values revert to their mean, this stock has the potential to double in price.

Note that its highest PSR was reported at 1.79 by Company REFS in the year 2000.

I hold. Purchase price 67p.

Epitychia

4th Sep

Very comprehensive analysis, thank you. It looks like a banger.

Tortoise investor

7th Sep

Thanks for the write up Roland. For me, like you, this a play on improving margins especially in Americas where the new management seems to be working. Their margin there was 1.4% at FY24 whereas internationally it is 10.8%. Hence I think a 6% margin target might be achievable if they can nudge Americas upwards.

One negative to note is international revenue slowed down significantly in H2 of last year from +8% at the half year to 0.1% at the full year. So some investors might prefer to wait until the half year results before diving in.

Economic concerns in the US might also weigh on valuation.

I hold. Copying a table from my notes if helpful!

WDWombat

12th Sep

We now know that the s-t answer to the headline was a resounding no. From the close of 192.5 on Sept 3rd the stock simply collapsed to 161 yesterday on pretty derisory volume. As I paid just over £2 on 28th August and was then stop loss triggered on 60% of my holding at 175 on 10th Sept I was and am not a happy bunny. Why do I think this occurred? Only two reasons spring to mind. Firstly the increase in freight costs which continues to be extremely elevated despite a recent down correction.

https://tradingeconomics.com/c...https://tradingeconomics.com/commodity/containerized-freight-index

This won't be helping. These costs appear to reflect the very tense situation in the ME, the continuing interference of the Houthi 'rebels' (as they are called) and possibly tthe escalation of the Russian incursion into Ukraine. Strike threats by US lonshoremen haven't helped either though this seems to have been sorted orr at least quietened.

Secondly is, I suggest, increasing nervousness about the US and European economies and specifically consumer spending. What kind of Christmas will it be and how will that effect IG design? The AGM is on Sept 26th. I am hoping for a slightly more upbeat comment than the recent share price would suggest.

Dojosan

16th Sep

£ strength is not going to help either. ..

They report in $ - so I think £ strength doesn't come into play.

Stock Pitch: Will IG Design keep rising?

Summary

Pros:

Cons:

Profile

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Roland Head

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