12 Stocks Of Christmas: IG Design

29th Dec '24 by Mark Simpson

5 comments 1199 reads

For my contributions to the 12 Stocks of Christmas, I am choosing four stocks that epitomise Quality, Value, Momentum and Growth for me. I’m starting with Value:

On the 8^th Day of Christmas, my true love gave to me:

IG Design (LON:IGR)

It is apt that IG Design is one of my Christmas stocks as they design and manufacture a huge number of Christmas products. Greetings Cards, Gift Bags & Boxes, Gift Wrap, Gift Tags, Accessories, Crackers, Partyware, Decorations, Santa Shop, Christmas Fun, Stationary Essentials, Santa’s Grotto and Christmas Display Solutions are just the category headings in their UK Christmas 2025 Catalogue. They are not all about Christmas, but even their non-seasonal products, such as Frames & Albums, Calendars & Diaries, and Kids Create, will have highly seasonal sales trends aligned with the same period.

IG Design has been on a bit of a rollercoaster ride in the last 10 years:

It 10-bagged from 2015-2020 as it pursued a growth strategy, but like many companies that prioritise sales growth above all else, it became unstuck. Partly, this was the impact of COVID-19, but then inflationary effects led to losses in 2022 and 2023. The company came close to insolvency in 2022, which seems strange for a company that regularly reports net cash. However, like many companies, the balance sheet date is carefully chosen and represents a seasonal high. The effect of having to order stock early and inflationary pressures meant that the working capital position put significant stress on the balance sheet.

While management changes are not always good for a struggling business, in this case, they appear to have been the catalyst for positive change. Paul Bal was appointed CFO on 1 May 2022 and was subsequently promoted to CEO on 1 April 2023. His focus on financial discipline can be seen in the net cash (debt) trajectory year-on-year:

With solvency no longer in doubt, investors can focus on the valuation, which looks very cheap on many metrics:

Leading to an impressive 96 Value Rank:

The key metric that makes this a value play for me is the 0.55xTBV. Most of this is inventory and receivables.…

Unlock with Email

Unlock with Google

Already have an account?
Login here

tiswas

17th Jan

Ouch, the mother of profit warnings!

wolfspirit

For the super brave - an opportunity to pick up some cheap this morning! 55% down from yesterday on profit wipeout.

I suppose we should be pleased that this news didn't leak early with insiders getting out before the RNS? They are hit just as hard!

Mark Simpson

19th Jan

Yes, poor timing on this one! Here is what I said elsewhere about what has gone wrong:

Oh dear, this is a huge profits warning here.

Correspondingly, FY25 adjusted profit is now expected to be significantly impacted, with profit delivery for the full year around break-even, and well below last year, as well as being significantly below current market expectations (believed to be $32.0m)

DG Americas is again doing the damage with their 4th largest customer entering Chapter 11. Something management specifically said they didn’t expect this year. There’s still net cash, but also below expectations:

A strong net cash position is still expected to remain at the year-end, albeit being lower than previous expectations given the reduced profit delivery and expected lower receivables recovery due to customer in protective arrangements or bankruptcy procedures. The Company also continues to expect cash proceeds from property disposals.

Progressive has this at $63.4m at the year end. And, of course, the huge discount to net current assets remains. But the timeframe for these becoming productive is now kicked into the unknown:

Under these challenging circumstances, at this stage, and until the recent events are more fully assessed, the Board is no longer able to provide guidance for the years beyond FY25.

Management credibility has taken a huge hit here. After all, less than a month ago, they gave a number of very specific reasons why they expected DG Americas profitability to recover in H2. The reality has been far from that and means they’ve pretty much gone from hero to zero in one step.

However, the 60%+ fall this week also looks overdone. Even with write-downs from one of their customers entering Chapter 11, the discount to Tangible Book Value is huge. Indeed, the expected cash balance at year-end covers almost 90% of the current market cap. The market is pricing this as if their receivables and inventory are largely worthless. This may be the case, but it seems far from the central outcome we should be using. The shares are trading not far off the level when the company was facing the real risk of insolvency, something that is no longer the case today. It will be a long wait for any recovery, though. With management credibility shot, the market will no longer value this on forecasts but will want to see profitability over an extended period before believing that DG Americas has actually been turned around.

Paul Hill

20th Jan

This comment is under review

22nd Jan

Hi Paul,

Personally, I am happy to average down so I have been adding. My logic was that the risk wasn't materially changed by this update, but the near-term outlook is more uncertain, which would normally mean a reduction in position size. However, the upside if these assets can be made productive again is now much higher. Overall, this means my position size should be similar. However, a 60% fall in price makes me underweight. This doesn't have characteristics that would mean I refuse to average down i.e. obsolescence risk or excessive gearing, and my at-cost weighting in the stock was not too high, so it made sense to add on the fall.

This is obviously a function of my unique personality and strategy, and I can see why other investors would take the opposite tack.

Cheers,

Mark

12 Stocks of Christmas: IG Design

IG Design (LON:IGR)

Unlock the rest of this article with a 14 day trial

About the Author

Mark Simpson

5 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...