No Pain, No Gain: Printing.com's tarnished image set to brighten up

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The Independent Online

Printing.com acquired a reputation for get-up-and-go profit performances. It joined the No Pain, No Gain portfolio three year ago, with the shares at 30.5p. They reached 77p but now bump along at around 46p.

So is its image irreparably damaged? I think not. The stock market clearly believes it is no longer a robust growth company. For the current year, this view seems accurate. After interim profits little changed at just over £1m, stockbroker Brewin Dolphin is shooting for a pre-tax return of £2.4m (against £2.2m) for the current 12 months.

Such a result would represent a reasonable achievement but would be far removed from the sort of display I - and others - had come to expect.

Clearly, the online printer is set for a year of consolidation. And, unless a bidder appears or Printing.com suddenly confounds its followers by recapturing more of its old vitality, the shares are going nowhere in the near term. Indeed, in the gap between last week's interims and the full-year results in June, I would expect them to drift a little lower. The period between results, with little in the way of news, is often an uninspiring time for a share. Printing.com is unlikely to be an exception.

Still, I am hanging on. Although I no longer regard the shares as an out-and-out buy, they are certainly worth holding. Indeed, with the interim dividend up 20 per cent and a prospective yield of nearly 4 per cent, they have income attractions that to some extent nullify the more cautious growth outlook.

The group had already alerted shareholders to a sudden trading downturn in June and July. Was it a hiccup - or something more lasting? But trading subsequently improved and the setback appears to have been short-lived. Still, it left its mark, not only hitting Printing.com shares but also damaging its go-go image.

This year will probably be something of a write-off, but my hunch is that the group will then recapture its former glory. If it doesn't, I fear the shares will be given the old heave-ho.

In this country, Printing.com is running out of space. It has a few company-owned stores but its top-tier franchise network, consisting of stand-alone retail outlets, is near saturation. There are 42 franchise shops and only some 14 franchises still available. But its chain of what are known as bolt-ons is growing rapidly.

Bolt-ons are not stand-alone operations. They are attached to an existing business - say, a designer or traditional printer. Many are, in effect, under the control of franchise shops. There are now 140 bolt-ons and Tony Rafferty, Printing. com's chief executive, reckons there is scope for more than 300.

Outlets do not depend on any onsite printing equipment. Orders for, say, booklets and leaflets are transmitted to a printing plant in Manchester. Completed prints are then dispatched to the customer.

Like the portfolio's other franchise constituent - Myhome International - Printing.com is keen to develop its international presence. It operates overseas by licensing its software and systems, thereby allowing the creation of printing networks similar to its British business. So far it has granted just one master franchise - to a New Zealand company. Already royalties have started to flow and it is likely that the Kiwi printer will embrace Australia.

An option has been taken on Poland, and Rafferty is optimistic that a franchise will materialise that could embrace some other Eastern European countries. He says he is "actively engaged in discussions" with other possible European Union partners and companies in the US and elsewhere.

Avesco, providing audio-visual equipment and other services for events, came near to joining the portfolio a year ago. Since then the shares have climbed from 90p to around 115p, with results meeting expectations. Interim profits, announced last week, were nearly £900,000 with around £3m (against £2.1m) expected for the year. The group is sending out a message of confidence through dividend payments; it is making a maiden interim distribution and should pay 2p a share (against 1.5p) for the year.

There's still a chance I will recruit Avesco to the portfolio. It is well run, although cash intensive. But then, sophisticated equipment at the top end of the market does not come cheap.

cash@independent.co.uk

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