IG Design: StockRank jump could signal growth opportunity

Ed’s latest article contains new research answering a question that we often hear: is a sudden jump in StockRank a buying signal?

Ed’s piece provides a summary of his findings ahead of July’s in-depth webinar, but the TL;DR is that big jumpers often do outperform. This effect is seen most strongly among stocks with a market cap below £350m, so for this week’s Stock Pitch I’ve decided to look at one of the small cap stocks highlighted by Ed’s research.

IG Design (LON:IGR) is a business that will be familiar to many subscribers. Recent years have seen the business suffer something of a mid-life crisis following in ill-fated US acquisition. But that’s now in the past and the current business looks a much more tempting proposition to me.

IG Design has also recently enjoyed a big StockRank Jump, placing it firmly in the cross-hairs of Ed’s latest strategy:

• Share price at the time of publication: 78p

• Market cap: £73m

Disclosure: at the time of publication, Roland has no position in IGR.

Source: IG Design FY26 presentation

The Pitch

Every year, giftware group IG Design supplies more than 550m items to over 3,800 retailers across the UK, Europe and Australia. Most of its products – such as wrapping paper, gift bags and cards – are consumable and require predictable repeat purchases at various points each year.

After an ill-fated attempt to expand in North America through a large acquisition, I think the company has now delivered on its promise to repair the damage. IG Design now looks more streamlined, profitable and lower risk to me than it did a year ago. I can now see several potential catalysts for a re-rating.

The StockRanks also have a positive view, rating IG Design as a Super Stock with strong momentum and improving quality and value:

The Big Picture

Annual sales of more than £200m speak to the volume and market share of this business, which supplies many of the biggest retailers in the UK and Europe – names such as Tesco, Action and Aldi feature on IG Design’s customer roster.

The case for an investment is simple: the balance sheet has been repaired, surplus cash is available for shareholder returns and profitability is expected to improve as a new incremental growth strategy is rolled out.

• Recent results underpin valuation: IG Design faced pressures last year from tariffs and sluggish UK consumer demand. However, I believe last year’s numbers represent a safe baseline to underpin the current valuation, especially as the group ended the year with net cash of £55m.

• c.£7.5m capital return signals repairs are complete: IG Design plans to repurchase up to 10% of share capital this year, which I estimate as a £7-8m cash return. This could provide a theoretical 11% boost to earnings while cutting the cost of future dividends. While last year’s newly-reinstated 1p dividend was covered seven times by earnings, management plans to bring cover down to 3x earnings over the medium term. The payout should rise rapidly from current levels, suggesting a potential income opportunity.

• Premiumisation and new product categories: many of IG’s core products are relatively commoditised, limiting the company’s pricing power. In an effort to address this and support higher margins, the company is targeting an incremental approach to growth. Successful implementation of this strategy could drive earnings upgrades and a re-rating – a 0.25% increase in operating margin would have added more than 5% to last year’s profits.

• Bolt-on growth strategy: small, incremental acquisitions such as the recent purchase of South African firm Glenart could be a low-risk and effective way to drive incremental growth. IG purchased Glenart for 6.6x pre-tax profit – cheaper than IG’s own valuation. Acquiring smaller companies at undemanding valuations can be a very successful growth strategy when executed well.

Going Deeper

A closer look at the shareholder register and recent director buying suggest good alignment between boardroom interests and those of individual shareholders:

• Top execs spend £1m on shares: new CEO Gerald Kuehr officially assumes his new role on 1 July. He celebrated his appointment with an £860k share purchase on 7 May. Kuehr is an experienced consumer goods executive and has been working with IG Design as an advisor since January. That means he knows the business well already; this could be a very well-informed purchase. CFO Rohan Cummings has also spent c.£130k on shares since his appointment in 2023. In total, the CEO and CFO have spent almost £1m buying shares.

• Founder ownership - Anders Hedlund founded the group in 1979 and was joint CEO until 2007. Hedlund sits on the board as a non-executive director; he and his family control 23.3% of the company’s shares. He is presumably keen to preserve his legacy, so should be a positive influence on strategy.

What The Brokers Say

IG Design is covered by Singer Capital and Canaccord Genuity, both of whom make their coverage available on Research Tree. The latest forecasts from each are tightly clustered and suggest a return to modest levels of growth from FY27 onwards:

Where the two brokers differ is on their approach to valuation and target prices, with one taking a more cautious view on growth potential than the other:

This average target of 124p is based on two widely diverging valuation estimates:

• Singer Capital: target price of 98p: this is based on a 4x EV/EBITDA multiple, with any upward re-rating dependent on “clearer evidence of strategic initiatives gaining traction”.

• Canaccord Genuity: target price of 150p: Canaccord appears to believe IG Design is undervalued and has opted for a more aggressive target valuation multiple of 9x FY27E EV/EBITDA. Canaccord Genuity is the company’s house broker.

The Bear Case

I think the two broker price targets I’ve discussed above are a nice reflection of the bull and bear cases that might be made here. I’ve already discussed some bullish arguments. Here are some factors that could limit the valuation of this business, in my opinion:

• Without growth, it’s not cheap: the stock trades on 15x forecast earnings and my fair value estimate for an ex-growth scenario is only 75-90p. That’s probably not worth the risk from current levels.

• Acquisition risk: another big and misguided acquisition (like the former US business) could mess things up for years.

• Always a price taker? Most of IG Design’s revenue depends on big supermarkets and discount retail chains. These businesses are never going to be more generous than necessary with small suppliers. IG Design’s margins will probably always be tight, with pressure on pricing and costs.

• Debt use highlights cash flow swings: despite the group’s massive year-end cash balance, it’s important to remember that this cash is not all surplus to requirements: half-year net cash was just £5m. The business needs to be able to fund huge swings in working capital as it builds seasonal stock ahead of Christmas. This year’s buyback and dividend suggest management believes there’s some surplus cash. But ongoing guidance is for free cash flow of c.£5m per year and the company still maintains a debt facility to help ease seasonal cash flows.

The Bottom Line

IG Design has been through a tough patch. It’s now emerged in surprisingly good shape with new leadership, surplus cash and an opportunity to return to sustainable growth through range expansion and bolt-on acquisitions.

The situation isn’t without risk – this is a low-margin business with demanding customers. However, I think current profits largely underpin the current valuation and I’m encouraged by decent levels of boardroom share ownership.

If the incoming CEO can engineer a return to growth, I believe IG Design shares could deliver attractive gains on a medium-term view.