Promotional products are big business, something that perhaps is not appreciated fully in the UK.
Sales in Britain are about £1bn, but the market in the US for example, is worth US$23bn and through its acquisition of AI Mastermind, Altitude Group PLC (LON:ALT) has taken a big slice of that.
Watch: Altitude Group to accelerate its US expansion after AI Mastermind acquisition
Altitude acquired the US business in January for US$5mln, so its latest results for the year to December published this week are little guide to what’s ahead.
Indeed, house broker finncap has pencilled in some punchy numbers for the next two years.
Analysts at the broker see sales rising from £6.6mln last year (2018) to £19.8mln this year and to £35.2mln in 2020.
Earnings will move in step and adjusted profits climb to £12.7mln in 2020 from a loss of £1.8mln in 2018.
Model change
A change in the way Altitude operates following the AI Mastermind acquisition underpins the forecast.
Promotional products can be anything that’s branded – from a pen, notepad, baseball cap through to golf equipment such as umbrellas and balls and clothing generally.
Altitude’s original business was to help distributors of these type of products by supplying the technology platform to order promotional products from suppliers.
It earned fees for setting up the technology and on orders placed through e-commerce sites accessing its platform.
The model was to get as many distributors or end users to sign up as possible.
AIM Smarter
AI Mastermind, now re-branded AIM Smarter, however, brought with it an aggregated buying group that now numbers more than 2,100 members dealing with sales worth US$1.9bn annually.
That makes it one of the largest promotional product buyers in the US and armed with the clout that entails, Altitude has now negotiated fees on all sales placed with a group of affiliate suppliers, whether through the dedicated platform or another route.
Some 149 suppliers have now agreed to pay rebates based on the amount of business they receive from the AIM Smarter group.
Promotions and incentives to both suppliers and distributors are growing the numbers of both says chief executive Nichole Stella.
To give an idea on the scale of the uplift coming, 2018’s revenues of £6.6mln were based on 266 buying group members and 70 preferred suppliers.
More preferred suppliers and buying group members also increases, the opportunity to cross-sell other services.
Huge opportunity
Going forward, Stella says the objective is to bring in more high-performance partner suppliers and further boost the buying group membership.
Tiered packages have been designed for both groups. For example, since being introduced n April 51 members have already upgraded to one of the new packages.
“It’s a huge opportunity for us to deliver great services and value,” Stella says.
Finncap has a price target of 140p, a valuation it says still looks very low based on the 2020 numbers especially as there is potential for a faster than expected development of the model.
At 106.5p, Altitude is valued at £80mln.