21-11-2005 - Printing.com - Printing.com puts some continental icing on the cake - Citywire
Franchise print shop business Printing.com significantly increased the number of stores in the first six months of the year and believes its centralised printing model is so profitable that it should work under licence on the Continent.Shares are up 1p to 71p, valuing Printing.com at £31 million.
The company runs eight of its own shops, although it intends to reduce this to around four or five, with the remainder being franchised businesses. The difference between Printing.com and larger competitors such as Prontaprint, is that Printing.com does not have any printing equipment in the actual stores. Rather it prints everything from a hub in Manchester on large, commercial printers capable of printing 120 different business cards or 40 flyers at a time in full four colours.
"We get incredible economies of scale", chief executive Tony Rafferty told Citywire. As a result, he reckons full colour business cards will cost a small or medium business customer £49, half of what they would normally pay for just single or two-colour printing.
In the six months to 16 October, turnover rose 25% to £9.3 million, with pre-tax profits up 75% to £1.1 million. Fully diluted earnings per share were up 54% at 1.66p and the company is paying a dividend of 0.5p
Franchisees either take on standalone printing stores, or "bolt" them on to existing businesses such as graphic design studios. At October there were 41 standalone stores up from 25 last time and 91 bolt-ons up from 58.
The company expects to open around 40 new outlets a year. Rafferty said the decision to decrease the number of owned stores is that they were only ever intended to test the concept. The company will retain four or five in order to continue research and development and also for training franchisees.
Franchisees buy printing at wholesale prices and sell them on to customers. For example, if the customer is charged £200 for a run of flyers, the artwork probably cost £40, the printing £160. Of this, the franchisee would pay Printing.com £100.
The company is happy with the physical store model and is not looking to expand online. Rafferty said it had tried it and lost money in the process. However, he reckons a US competitor that does business purely online, told him that average revenues per user were just $28, whereas Printing.com's average is around £500.
Where the company does believe it can expand is into continental Europe, but on a licence basis. Rafferty reckons there are plenty of printers in countries such as Germany and France, that have been printing goods such as CD covers, a market that is in decline. These printers have the right equipment, and he reckons it would make a lot of sense for them to buy a licence to the Printing.com franchise model. The company is looking at selling a licence for £300,000 and then charging a royalty of 3% on net turnover.
However, this would be "the icing on the cake" for Printing.com, and is not in any numbers currently in the market for the business.
House broker Brewin Dolphin had been looking for £2.53 million of profit and 3.69p earnings per share for 2006 and £3.44 million, 4.94p per share for 2007, although this may be updated after today's analyst meeting.
Citywire Verdict:
The current expectations put the shares on 19.2 times this year and 14.3 times next year's earnings.
The European licensing expansion certainly could be the icing on the cake, and the business looks to have good prospects still in the UK. However at the current price, there is perhaps no great hurry to pile in.