Card Manufacturing unit ($CARD.L) is a well-liked model recognized within the UK for high-quality presents at inexpensive costs. Regardless of its challenges, the corporate has potential for progress.
Key Highlights
Card Manufacturing unit 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 unit at present trades at a major low cost
The Enterprise and the Trade
It’s obscure the greeting playing cards trade exterior of the UK, as it is a quintessentially British phenomenon. Britons categorical their love and affection via the alternate of playing cards, and interact on this custom at a fee 2-3 instances larger 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 progress even via downturns.
Knowledge from OC&C Technique Consultants – Visualization by the creator
Card Manufacturing unit 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 unit began to design and manufacture its merchandise in-house, permitting superior price management and adaptableness to market tendencies. 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 unit saved rising, reaching over 1000 areas whereas specializing in non-card objects like celebration necessities and presents, however all the time sustaining its picture as a price range model.
An elevated aggressive setting mixed with the extreme blow of the COVID-19 pandemic meant the necessity for a brand new technique at Card Manufacturing unit. The corporate initiated a brand new funding cycle to enhance the web buyer expertise and develop its product combine. The administration additionally modified the shop layouts, lowering the area for the greeting playing cards (solely 7% of the entire) and strategically inserting them across the perimeter of the shop making room for celebration necessities and presents.
Now Card Manufacturing unit gives a one-stop buying expertise to have a good time life moments, properly aligned with broader shopper tendencies. It transitioned from a store-led card retailer right into a market-leading, omnichannel retailer of playing cards, presents and celebration necessities. Buyer visitors and revenues have surpassed pre-pandemic ranges, displaying robust buyer loyalty, and non-card objects now account for roughly 51% of revenues.
Knowledge from Card Manufacturing unit Annual Report (FY 2024) – Visualization by the creator
Competitors
The principle opponents 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 primary competitor within the specialty retailer area. The corporate is concentrated on the web greeting playing cards area, the place it rapidly gained a major market share. Anyway, regardless of its preliminary disruptive presence that eroded a part of the normal retail market channel, the corporate has now stopped rising. Particularly, its dependence on the postal providers turned out to be costly in opposition to in-store purchases, particularly for minor transactions.
ASDA emerged as Card Manufacturing unit’s important 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 unit. This aggressive strain grew to become the catalyst for Card Manufacturing unit’s strategic shift, reworking it right into a one-stop store for all life second celebrations.
Regardless of the challenges, Card Manufacturing unit can nonetheless depend on its aggressive benefit given by its vertically built-in brick-and-mortar greeting playing cards retailer mannequin. This supplies a sturdy aggressive benefit, permitting complete management throughout all operations and fast adaptation to market tendencies. In a different way from common shops counting on suppliers like Hallmark, Card Manufacturing unit can command higher product selection with higher high quality.
Goal Market
Card Manufacturing unit controls roughly 30% of the UK greeting card market by quantity. The remaining is roughly evenly distributed between groceries and common merchandise shops. The distinctive worth proposition of Card Manufacturing unit poses the corporate in an ideal place to revenue from the broad celebration events market.
Knowledge from Card Manufacturing unit Annual Report (FY 2024) Visualization by the creator
The focused market alternative for Card Manufacturing unit 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) presents 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 presents are included.
The celebration necessities and presents segments, way more engaging than the standalone greeting playing cards market, spotlight how Card Manufacturing unit’s strategic shift towards a extra various product combine may function a powerful catalyst for future progress alternatives.
Alternatives
The market seems at Card Manufacturing unit as a stagnant and out of date enterprise. It is 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 section, the corporate has leveraged its dominant place available in the market to supply further complementary merchandise.
The truth is, the non-card segments provide the strongest progress potential for Card Manufacturing unit. At present, solely 17% of its prospects buy presents alongside greeting playing cards, in comparison with the trade common of round 70%. This hole presents a major alternative for Card Manufacturing unit to extend present gross sales, which in flip may drive larger card gross sales, nonetheless essentially the most worthwhile a part of its product combine.
Dangers
There are a variety of dangers that jeopardize the chance for Card Manufacturing unit to ship these outcomes. As a price range model, Card Manufacturing unit is weak to inflationary pressures, because it has restricted flexibility to boost 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 primary aggressive benefit of Card Manufacturing unit lies in its vertically built-in operations, that permit an in depth and extra dynamic price management.
One other threat is posed by attainable financial downturns. Regardless of with the ability to develop identical retailer gross sales via 2008 and 2009, the numerous publicity to non-card objects now introduces a higher vulnerability for Card Manufacturing unit. Equally, if shopper preferences have been to shift considerably away from conventional greeting playing cards, Card Manufacturing unit would possibly battle to adapt rapidly. Nevertheless, the custom of sending and receiving greeting playing cards stays deeply ingrained in British tradition, and it continues to be fashionable even amongst youthful generations.
Card Manufacturing unit Valuation
However what’s the worth of Card Manufacturing unit?
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, consistent with the corporate’s dedication. I’ll assume a ten% Price of Capital, that’s cheap contemplating the present risk-free rates of interest. I will even assume a 0% progress fee for the RE (Residual Earnings). This method has two key advantages: it considerably reduces the danger of overpaying for progress and aligns with market idea, which means that residual earnings are inclined to diminish over time. Given a BPS (Guide Worth per Share) in FY 2023 of £0.90, we are actually 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 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 unit. This valuation is very conservatory, that means that it might 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 unit too harshly for its disappointing HY 2024 outcomes. The corporate is considerably undervalued, because the market is underestimating its potential to navigate inflationary challenges within the UK and is displaying little curiosity in an trade perceived as stagnant and out of date. Nevertheless, Card Manufacturing unit 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, may function a key catalyst to evaluate its efficiency.
Moreover, the acquisition of Garven Holdings, LLC, introduced on December 5, 2024, underscores Card Manufacturing unit’s robust monetary place and highlights administration’s dedication to attaining its bold progress targets. On the identical 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 potential to ship on its targets.
Lastly, there was notable insider exercise within the inventory. The Senior Impartial 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 suppose the worth will rise.”
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