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 progress.
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 presently trades at a major low cost
The Enterprise and the Trade
It’s obscure the greeting playing cards business outdoors of the UK, as it is a quintessentially British phenomenon. Britons specific their love and affection via the alternate of playing cards, and interact on this custom at a fee 2-3 instances increased per capita in comparison with the USA. It’s then not a shock that the general UK greeting playing cards market has traditionally confirmed recession resilient, demonstrating constant progress even via downturns.
Knowledge from OC&C Technique Consultants – Visualization by the creator
Card Manufacturing facility was based in 1997 with the aim of delivering prime quality greeting playing cards at a low worth. To succeed, the corporate initiated a strategic transfer in direction of vertical integration. Card Manufacturing facility began to design and manufacture its merchandise in-house, permitting superior value management and flexibility to market traits. By specializing in high-quality merchandise at compelling worth factors the corporate gained a distinct segment within the price range sector of the market. Through the years, Card Manufacturing facility saved rising, reaching over 1000 areas whereas specializing in non-card gadgets like celebration necessities and items, however at all times sustaining its picture as a price range model.
An elevated aggressive surroundings 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 net buyer expertise and develop its product combine. The administration additionally modified the shop layouts, lowering the house for the greeting playing cards (solely 7% of the whole) and strategically inserting them across the perimeter of the shop making room for celebration necessities and items.
Now Card Manufacturing facility gives a one-stop buying expertise to have fun life moments, nicely aligned with broader shopper traits. 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 robust buyer loyalty, and non-card gadgets now account for roughly 51% of revenues.
Knowledge from Card Manufacturing facility Annual Report (FY 2024) – Visualization by the creator
Competitors
The primary rivals within the greeting card marketplace for the UK embrace the specialty retailers (Clintons, Moonpig), grocery shops (ASDA, Tesco) and basic merchandise shops (Wilko, Residence Bargains).
Moonpig is the principle competitor within the specialty retailer house. The corporate is targeted on the net greeting playing cards house, the place it shortly gained a major 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 towards in-store purchases, particularly for minor transactions.
ASDA emerged as Card Manufacturing facility’s major competitor within the conventional greeting card enterprise. Leveraging its scale, ASDA was in a position to 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 turned the catalyst for Card Manufacturing facility’s strategic shift, remodeling 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 traits. Otherwise from basic shops counting on suppliers like Hallmark, Card Manufacturing facility can command larger product selection with higher high quality.
Goal Market
Card Manufacturing facility controls roughly 30% of the UK greeting card market by quantity. The remaining is roughly evenly distributed between groceries and basic 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.
Knowledge from Card Manufacturing facility Annual Report (FY 2024) Visualization by the creator
The focused market alternative for Card Manufacturing facility totals to £13.4 billion within the UK. This consists of 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 improve as much as £80 billion when celebration necessities and items are included.
The celebration necessities and items segments, way more enticing 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 progress 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 latest decline within the greeting playing cards section, the corporate has leveraged its dominant place available in the market to supply further complementary merchandise.
In truth, the non-card segments provide the strongest progress potential for Card Manufacturing facility. At present, solely 17% of its prospects buy items alongside greeting playing cards, in comparison with the business common of round 70%. This hole presents a major alternative for Card Manufacturing facility to extend reward gross sales, which in flip might drive increased card gross sales, nonetheless essentially the most worthwhile a part of its product combine.
Dangers
There are a variety of dangers that jeopardize the likelihood for Card Manufacturing facility to ship these outcomes. As a price range 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 last half yr, the place the rise within the Nationwide Dwelling wage squeezed the corporate’s gross margin. Anyway, the principle aggressive benefit of Card Manufacturing facility lies in its vertically built-in operations, that enable an in depth and extra dynamic value management.
One other threat is posed by potential financial downturns. Regardless of having the ability to develop similar retailer gross sales via 2008 and 2009, the numerous publicity to non-card gadgets now introduces a larger vulnerability for Card Manufacturing facility. Equally, if shopper preferences had been to shift considerably away from conventional greeting playing cards, Card Manufacturing facility would possibly battle to adapt shortly. Nevertheless, the custom of sending and receiving greeting playing cards stays deeply ingrained in British tradition, and it continues to be well-liked 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 College 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 essentially 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, in step 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 may also assume a 0% progress fee for the RE (Residual Earnings). This strategy has two key advantages: it considerably reduces the danger of overpaying for progress and aligns with market idea, which means that residual earnings are likely 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 Frequent 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 Income 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 progress for the longer term 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, which means that it will be enough for the corporate to ship their commitments to see this appreciation mirrored within the inventory worth.
Conclusion
The market has lately punished Card Manufacturing facility too harshly for its disappointing HY 2024 outcomes. The corporate is considerably undervalued, because the market is underestimating its means to navigate inflationary challenges within the UK and is displaying little curiosity in an business perceived as stagnant and out of date. Nevertheless, Card Manufacturing facility is evolving right into a one-stop store for celebrating life’s moments. This transformation opens thrilling new progress alternatives, leveraging its robust 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 robust monetary place and highlights administration’s dedication to attaining its bold progress targets. On the similar time, the January buying and selling replace for the second half of 2024 revealed robust income progress (+6.2% year-on-year) and demonstrated administration’s means 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 stated, “Insiders would possibly promote their shares for any variety of causes, however they purchase them for just one: they assume the value will rise.”
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