Description

Company Overview

Cimpress N.V., formerly known as Vistaprint N.V., is a group of more than a dozen businesses that specialize in mass customization. It delivers large volumes of individually small-sized customized orders for a variety of print, signage, photo merchandise, invitations and announcements, packaging, and apparel.

The Company operates through four segments, which include Vistaprint, Upload and Print, National Pen, and other. The company's Vistaprint websites have enabled approximately 17 million micro businesses create professional-quality marketing products. The Upload and Print segment provides professional desktop publishing services for graphic professionals, including local printers, print resellers, graphic artists, and advertising agencies. National Pen offers customized writing instruments and promotional products, apparel, and gifts for small- and medium-sized businesses through direct mail and telephone sales, as well as an e-commerce site. Other business segments including providing retail partner and franchise, online printing, digital, website design and hosting, and email marketing services, as well as order referral and other third-party services. Cimpress was founded and is based in the Netherlands, however, 42% of its revenue is comprised of US sales, and 58% internationally.

Investment Thesis

1.      Aggressive capital spending on Upload and Print segment has distracted investors from the key Vistaprint business

·       The Upload and Print segment has spent over $550M on 7 acquisitions since 2014 to build a mass customization platform, which carries payoff potential down the road, but limits current share buybacks which investors have historically liked

·       Investors fear the risk of an overly aggressive capital spending program that fails to deliver adequate returns and integration issues that alienate current customers. However, management has historically successfully integrated companies, as Cimpress is comprised of over a dozen individual businesses

2.      Recent acquisition of BuildASign is significantly discounted by investors

·       Cimpress completed its biggest acquisition to-date BuildASign ($274M) which was in line with multiples paid for National Pen and other successful acquisitions – yet the stock fell 20% within three weeks of the announcement

·       Management has a proven track-record of making strategic acquisitions and extracting significant value from the transactions. For seven acquisitions since 2014, management has achieved ~12% UFCF yields and ~14% SSFCF yields annually

3.      Cimpress is well-positioned to benefit from the shift to e-commerce

·       There are still around 30K print service providers in North America with no online presence as only ~20% of orders are purchased online – Cimpress’ main distribution channel

·       The North American e-commerce print shipment industry is forecasted to grow at an 18.2% CAGR over the next eight years, a trend that will force a significant number of SMBs to close shop as Cimpress dominates the online market

o   Cimpress has 200+ patents on $1.4B of tech and manufacturing investments – it would take years and cost millions for a competitor to replicate Cimpress’ online mass customization platform

·       Cimpress’ current lifetime value of a customer versus the cost of acquiring a customer ratio (LTV:CAC) is 5x, which means there is room for increased marketing spend to capture a greater market proportion as the shift to e-commerce continues

4.      Management has shown an extremely impressive track record of capital allocation in the past which we expect to continue

·       Cimpress remains extremely focused on capital allocation as a Company and has delivered on their promise to deliver returns well above their cost of capital for decades

·       Barring major management changes, we view Cimpress as a company positioned well in an attractive industry being led by an adept management team

Valuation

Our valuation is based on a discounted cash flow analysis assuming a Company-level revenue growth rate beginning in the low-double digits and tapering to mid-single digits over the next 5 years. High-single digit operating margins were assumed in the forecast period and a cash conversion ratio was used to arrive at levered free cash flow. Capital expenditures and acquisition expenses were determined through Company guidance and historical data. Terminal value was determined with multiples showing significant contraction from current levels. This valuation implied upside in the Company’s equity of over 20%.

Key Risks/Mitigations and Catalysts

1.      RISK: Successful scaling of many smaller competitors in certain niches (like Moo.com in high quality business cards)

2.      CATALYST: Improved financial performance upon successful integration of acquired companies

Catalyst

See Above