Card Manufacturing facility ($CARD.L) is a well-liked model identified within the UK for high-quality items at reasonably priced costs. Regardless of its challenges, the corporate has potential for development.
Key Highlights
Card Manufacturing facility is a resilient enterprise with a powerful model consciousness within the UK
The outcomes of the Christmas interval would be the catalyst for its success
Card Manufacturing facility at present trades at a big low cost
The Enterprise and the Business
It’s obscure the greeting playing cards trade exterior of the UK, as this can be a quintessentially British phenomenon. Britons specific their love and affection by means of the alternate of playing cards, and interact on this custom at a fee 2-3 occasions increased per capita in comparison with the US. It’s then not a shock that the general UK greeting playing cards market has traditionally confirmed recession resilient, demonstrating constant development even by means of downturns.
Information from OC&C Technique Consultants – Visualization by the writer
Card Manufacturing facility was based in 1997 with the aim of delivering top quality greeting playing cards at a low worth. To succeed, the corporate initiated a strategic transfer in the direction of vertical integration. Card Manufacturing facility began to design and manufacture its merchandise in-house, permitting superior value management and flexibility to market tendencies. By specializing in high-quality merchandise at compelling worth factors the corporate gained a distinct segment within the finances sector of the market. Over time, Card Manufacturing facility saved rising, reaching over 1000 places whereas specializing in non-card objects like celebration necessities and items, however all the time sustaining its picture as a finances model.
An elevated aggressive atmosphere mixed with the extreme blow of the COVID-19 pandemic meant the necessity for a brand new technique at Card Manufacturing facility. The corporate initiated a brand new funding cycle to enhance the web buyer expertise and increase its product combine. The administration additionally modified the shop layouts, lowering the area for the greeting playing cards (solely 7% of the full) and strategically inserting them across the perimeter of the shop making room for celebration necessities and items.
Now Card Manufacturing facility affords a one-stop procuring expertise to have a good time life moments, nicely aligned with broader shopper tendencies. It transitioned from a store-led card retailer right into a market-leading, omnichannel retailer of playing cards, items and celebration necessities. Buyer visitors and revenues have surpassed pre-pandemic ranges, displaying sturdy buyer loyalty, and non-card objects now account for roughly 51% of revenues.
Information from Card Manufacturing facility Annual Report (FY 2024) – Visualization by the writer
Competitors
The primary rivals within the greeting card marketplace for the UK embrace the specialty retailers (Clintons, Moonpig), grocery shops (ASDA, Tesco) and common merchandise shops (Wilko, House Bargains).
Moonpig is the principle competitor within the specialty retailer area. The corporate is targeted on the web greeting playing cards area, the place it shortly gained a big market share. Anyway, regardless of its preliminary disruptive presence that eroded a part of the standard retail market channel, the corporate has now stopped rising. Particularly, its dependence on the postal companies turned out to be costly in opposition to in-store purchases, particularly for minor transactions.
ASDA emerged as Card Manufacturing facility’s essential competitor within the conventional greeting card enterprise. Leveraging its scale, ASDA was capable of negotiate extra favorable offers with suppliers, enabling the grocery chain to promote greeting playing cards at costs even decrease than Card Manufacturing facility. This aggressive strain grew to become the catalyst for Card Manufacturing facility’s strategic shift, reworking it right into a one-stop store for all life second celebrations.
Regardless of the challenges, Card Manufacturing facility can nonetheless depend on its aggressive benefit given by its vertically built-in brick-and-mortar greeting playing cards retailer mannequin. This supplies a strong aggressive benefit, permitting complete management throughout all operations and fast adaptation to market tendencies. In another way from common shops counting on suppliers like Hallmark, Card Manufacturing facility can command higher product selection with higher high quality.
Goal Market
Card Manufacturing facility controls roughly 30% of the UK greeting card market by quantity. The remainder is roughly evenly distributed between groceries and common merchandise shops. The distinctive worth proposition of Card Manufacturing facility poses the corporate in an ideal place to revenue from the broad celebration events market.
Information from Card Manufacturing facility Annual Report (FY 2024) Visualization by the writer
The focused market alternative for Card Manufacturing facility totals to £13.4 billion within the UK. This contains the UK greeting playing cards market price £1.4 billion, the UK celebration necessities at £2 billion and the UK marketplace for (chosen) items at £10 billion. The corporate additionally recognized a number of worldwide alternatives with an estimated £8 billion addressable marketplace for greeting playing cards that may enhance as much as £80 billion when celebration necessities and items are included.
The celebration necessities and items segments, much more engaging than the standalone greeting playing cards market, spotlight how Card Manufacturing facility’s strategic shift towards a extra various product combine might function a powerful catalyst for future development alternatives.
Alternatives
The market appears to be like at Card Manufacturing facility as a stagnant and out of date enterprise. This can be a false impression contemplating the strategic transfer that the enterprise has undergone within the afterwards of the pandemic. Certainly, regardless of the current decline within the greeting playing cards phase, the corporate has leveraged its dominant place available in the market to supply further complementary merchandise.
In truth, the non-card segments supply the strongest development potential for Card Manufacturing facility. Presently, solely 17% of its prospects buy items alongside greeting playing cards, in comparison with the trade common of round 70%. This hole presents a big alternative for Card Manufacturing facility to extend reward gross sales, which in flip might drive increased card gross sales, nonetheless probably the most worthwhile a part of its product combine.
Dangers
There are a variety of dangers that jeopardize the chance for Card Manufacturing facility to ship these outcomes. As a finances model, Card Manufacturing facility is weak to inflationary pressures, because it has restricted flexibility to lift costs with out affecting its worth proposition. That’s what occurred over the past half yr, the place the rise within the Nationwide Residing wage squeezed the corporate’s gross margin. Anyway, the principle aggressive benefit of Card Manufacturing facility lies in its vertically built-in operations, that permit an in depth and extra dynamic value management.
One other threat is posed by attainable financial downturns. Regardless of having the ability to develop identical retailer gross sales by means of 2008 and 2009, the numerous publicity to non-card objects now introduces a higher vulnerability for Card Manufacturing facility. Equally, if shopper preferences have been to shift considerably away from conventional greeting playing cards, Card Manufacturing facility would possibly wrestle to adapt shortly. Nonetheless, the custom of sending and receiving greeting playing cards stays deeply ingrained in British tradition, and it continues to be widespread even amongst youthful generations.
Card Manufacturing facility Valuation
However what’s the worth of Card Manufacturing facility?
I’ll use the Residual Earnings Mannequin to worth the enterprise, detailed in Accounting for Worth by Stephen Penman (Columbia Enterprise Faculty Publishing, 2010). Some main advantages from utilizing this mannequin are the low variety of inputs, low quantity of hypothesis added and strict connection to the basics.
I’ll assume EPS of £0.14 and £0.15 for FY 2024 and FY 2025. These are probably the most up to date estimates of the monetary analysts following the corporate. Plus, I’ll assume DPS (Dividend per Share) of £0.05 and £0.06, consistent with the corporate’s dedication. I’ll assume a ten% Price of Capital, that’s affordable contemplating the present risk-free rates of interest. I can even assume a 0% development fee for the RE (Residual Earnings). This strategy has two key advantages: it considerably reduces the danger of overpaying for development and aligns with market concept, which means that residual earnings are inclined to diminish over time. Given a BPS (Ebook Worth per Share) in FY 2023 of £0.90, we at the moment are able to compute the worth per share of the corporate:
The BPS for FY 2024 and FY 2025 is computed including the EPS and subtracting DPS from earlier yr BPS. We compute ROCE (Return on Widespread Fairness) because the ratio of EPS and former yr BPS. The Residual Earnings are computed subtracting the Price of Capital from the ROCE, permitting us to concentrate on the Financial Earnings of the corporate. The result’s then multiplied by the earlier yr BPS. Lastly, we low cost future Residual Earnings with a ten% Price of Capital, assuming no development for the long run intervals, and we add it to the bottom BPS.
As we are able to see the ensuing worth per share is £1.41, displaying roughly a 50% premium from the present worth of Card Manufacturing facility. This valuation is very conservatory, that means that it could be ample for the corporate to ship their commitments to see this appreciation mirrored within the inventory worth.
Conclusion
The market has not too long ago punished Card Manufacturing facility too harshly for its disappointing HY 2024 outcomes. The corporate is considerably undervalued, because the market is underestimating its skill to navigate inflationary challenges within the UK and is displaying little curiosity in an trade perceived as stagnant and out of date. Nonetheless, Card Manufacturing facility is evolving right into a one-stop store for celebrating life’s moments. This transformation opens thrilling new development alternatives, leveraging its sturdy model recognition and dominant market place.
The upcoming Christmas interval, which accounts for roughly 70% of the corporate’s yearly outcomes, might function a key catalyst to evaluate its efficiency.
Moreover, the acquisition of Garven Holdings, LLC, introduced on December 5, 2024, underscores Card Manufacturing facility’s sturdy monetary place and highlights administration’s dedication to reaching its bold development targets. On the identical time, the January buying and selling replace for the second half of 2024 revealed sturdy income development (+6.2% year-on-year) and demonstrated administration’s skill to ship on its targets.
Lastly, there was notable insider exercise within the inventory. The Senior Unbiased Director, Pam Powell, bought 5,109 shares on December 30, 2024. The CEO, Darcy Willson-Rymer, acquired 49,529 shares on December 11, 2024, and the CFO, Matthias Seeger, purchased 21,244 shares on December 5, 2024.
As Peter Lynch famously mentioned, “Insiders would possibly promote their shares for any variety of causes, however they purchase them for just one: they assume the worth will rise.”
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