Stock market loses patience with St Ives

What a beastly start to the year for St Ives, “the City printer” that was founded in the 1960s by Bob Gavron, one of the earliest advocates of constraints on executive pay.

Last week it lost a contract to print books for HarperCollins, the publisher. Matt Armitage, chief executive, said he was not “prepared to chase volume at uneconomic prices”. This only underscored the look of St Ives as a tiddler doggy-paddling increasingly slowly against the circumpolar current.

Last month St Ives warned just before its half-year end that profits would be “materially” lower than forecast. There had been a sharp drop in profitability of the so-called marketing activation arm that prints campaign posters and cardboard stands for promotions at supermarket checkouts.

St Ives will carry on printing books for HarperCollins until the summer. But losing the contract will reduce next year’s revenues by £11m and pre-tax profits by £3.5m. Shrinking the business will cost another million or so. The shares fell from 72p to 59p, valuing the group at £89m or just over five times forecast earnings.

This is the business that was created in 1964 when the late Gavron, then a young lawyer, borrowed £5,000 to buy a lossmaking printing company.

It flourished for 30 years, printing glossy magazines and annual company reports, building a reputation for accuracy, quick thinking and sharp management, in contrast to the inflexibility of rivals.

In 1985, Gavron floated St Ives on the stock market at 290p a share, valuing the group at about £18m. It was the time that News International decided to shift from hot metal presses to electronic printers, sparking the Wapping strike that marked the end of the era of Fleet Street printing.

When Gavron stepped back from St Ives in the early 1990s, the company was valued at £400m. He was made a Labour peer in 1999.

By then the digital age and the shift from the printed word to the screened word was taking hold.

2009, the year that Gavron first put forward a bill to force companies to disclose the gap between the pay of bosses and their lowest paid workers, was a low point for St Ives. It made losses for the first time in its history as a public company and its market value fell to £250m.

Since then, St Ives has worked hard to reshape itself, selling off print sites and building a strategic marketing division by mopping up communication agencies, website developers, search engine specialists and technology consultancies.

For a moment in late 2015, St Ives convinced the stock market it was back in control.

But in April 2016 it issued a profit warning, and two more since.

The group’s legacy divisions, printing books for the likes of HarperCollins and posters for the big grocers, represent 60 per cent of sales and 40 per cent of operating profits, but continue to be “duffed up by oversupply [from rivals] and the size of customers”, says Malcolm Morgan, analyst at Peel Hunt. “The management did their best but the dynamics of the industry have gone against them.”

And the stock market has lost patience. What it thought “was managed decline, turns out to be a rout”, says Mr Morgan.

He estimates that profits before tax and other nasties will be down to £24.5m in the year to July, against £30m last time. The group is still generating cash. But net debt will be near £70m and the pension deficit is about £26m. That will constrain the group’s ability to make more acquisitions or keep paying the dividend at current levels.

In time, a private equity firm or an industrial investor may come up with a plan to take on the strategic marketing division and deal with the legacy print businesses. But as Mr Morgan says, “it is a buyers’ market”.

Gavron, asked in 2000 by PrintWeek why he had chosen to call the business St Ives rather than Gavron Print, said: “Because I wanted the company to continue to prosper after I left.” He worried that bosses who were too closely associated with the corporate brand became indispensable.

Yet as the UK government considers implementing proposals for companies to disclose pay ratios, Gavron’s name still resonates. Meanwhile, the chances are that St Ives’ name will soon be little but a faint stock market memory.

kate.burgess@ft.com