Findel — A strong finish to the year

Findel — A strong finish to the year

Findel’s (FDL’s) attractive online-led value retail proposition is continuing to deliver impressive results. With the mandatory offer by Sports Direct having lapsed, FDL has issued a post-close update confirming a strong trading performance in Q4 in both Studio and Education and expectations for FY19 PBT to slightly exceed market consensus of £27–28m. We upgrade our PBT forecasts by 6% for FY19 and 1% for FY20. Given recent share price weakness, our unchanged valuation of 348p is twice the current share price.

Analyst avatar placeholder

Written by

Findel

A strong finish to the year

Trading update

Retail

9 May 2019

Price

173p

Market cap

£149m

Core net debt (£m) at 31 March 2019

c 57

Shares in issue

86.4m

Free float

61%

Code

FDL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.0

(4.9)

(32.2)

Rel (local)

10.1

(7.8)

(29.3)

52-week high/low

302.00p

154.00p

Business description

Findel is a multi-channel retailer operating across the business-to-consumer and business-to-business market places. It is a market-leading online value retailer and educational resource supplier in the UK.

Next events

Final results

5 June 2019

Analysts

Kate Heseltine

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5757

Findel is a research client of Edison Investment Research Limited

Findel’s (FDL’s) attractive online-led value retail proposition is continuing to deliver impressive results. With the mandatory offer by Sports Direct having lapsed, FDL has issued a post-close update confirming a strong trading performance in Q4 in both Studio and Education and expectations for FY19 PBT to slightly exceed market consensus of £27–28m. We upgrade our PBT forecasts by 6% for FY19 and 1% for FY20. Given recent share price weakness, our unchanged valuation of 348p is twice the current share price.

Year end

Revenue (£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

P/E
(x)

EV/EBITDA
(x)

03/17**

457.0

40.8

22.2

20.4

8.5

5.5

03/18

479.0

46.6

26.8

25.9

6.7

4.8

03/19e

507.0

51.3

28.5

27.7

6.2

4.4

03/20e

540.4

54.1

29.5

28.5

6.1

4.1

Note: *PBT and EPS are normalised, excl intangible amortisation, exceptional items and share-based payments. **53 weeks, restated. Historical results are not restated for IFRS9.

Post-close: Beating current market expectations

Studio continued to trade strongly in the fourth fiscal quarter. Categories that performed particularly well included garden ranges, boosted by good weather in early February, and homewares. Similarly, education enjoyed a solid final quarter with an acceleration in customer recruitment and ongoing improvement in online ordering levels. Management expects FY19 pre-tax profits to slightly exceed the current market consensus of £27–28m (we estimated £27m before the update). Core net debt at the end of March was c £57m, marginally below our forecast of £58.5m. This represents a c £17m reduction in core net debt year-on-year.

Forecasts: 6% FY19e earnings upgrade

We upgrade our underlying PBT forecast by 5.6% for FY19e, mainly reflecting a strong sales performance and continued margin improvement in Studio across the year. We further upgrade our FY20e PBT forecast by 1.0%, representing year-on-year earnings growth of 3.5%.

Valuation: 100% upside given share price weakness

Since the start of November the share price has fallen 45%, from an undisturbed price of 250p (before the sale of stakes representing 24.1% of FDL’s issued share capital by Toscafund Asset Management and City Financial Investment Company, for reasons unrelated to their views on the company). This decline appears unjustified given the strength of trading and ongoing reduction in core net debt. At this stage we make no change to our blended valuation of 348p, which is now twice the current share price. In our view, minimal take-up (representing only 0.01% of FDL’s issued share capital) of the recent unsolicited mandatory offer by Sports Direct at 161p highlights ongoing support for the strategy and future growth prospects.

Exhibit 1: Financial summary

£'000s

2017

2018

2019e

2020e

Mar

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

457,030

478,959

507,043

540,384

Cost of Sales

(269,182)

(280,230)

(300,607)

(320,110)

Gross Profit

187,848

198,729

206,436

220,275

EBITDA

 

 

40,786

46,569

51,305

54,123

Operating Profit (before amort. and except.)

 

33,300

38,146

42,443

45,162

Intangible Amortisation

(1,959)

(1,996)

(2,552)

(2,387)

Operating profit pre exc post intang amortisation

31,341

36,150

39,891

42,775

Exceptionals

(82,152)

0

(4,500)

0

Other/share based payments

(191)

(199)

(1,000)

(1,000)

Operating Profit

(51,002)

35,951

34,391

41,775

Net Interest

(8,920)

(9,130)

(10,345)

(12,244)

Derviatives, other

556

(4,701)

0

0

Profit Before Tax (norm)

 

 

22,230

26,821

28,546

29,531

Profit Before Tax (FRS 3)

 

 

(59,366)

22,120

24,046

29,531

Tax

1,659

2,081

(4,737)

(5,906)

Profit After Tax (norm)

17,617

22,397

23,909

24,625

Profit After Tax (FRS 3)

(57,707)

24,201

19,309

23,625

Average Number of Shares Outstanding (m)

86.3

86.3

86.3

86.3

EPS - normalised (p)

 

 

20.4

25.9

27.7

28.5

EPS - normalised and fully diluted (p)

 

20.4

25.9

27.7

28.5

EPS - (IFRS) (p)

 

 

(66.8)

28.0

22.4

27.4

Dividend per share (p)

0.0

0.0

0.0

0.0

Gross Margin (%)

41.1

41.5

40.7

40.8

EBITDA Margin (%)

8.9

9.7

10.1

10.0

Operating Margin (before GW and except.) (%)

7.3

8.0

8.4

8.4

BALANCE SHEET

Fixed Assets

 

 

79,012

81,687

84,288

84,940

Intangible Assets

26,185

25,175

28,947

28,560

Tangible Assets

44,417

47,596

46,489

47,528

Investments

8,410

8,916

8,852

8,852

Current Assets

 

 

301,265

311,918

340,669

366,563

Stocks

57,108

54,180

57,017

70,405

Debtors

212,648

231,037

246,996

260,584

Cash

29,173

26,244

36,333

35,252

Other

2,336

457

322

322

Current Liabilities

 

 

(91,789)

(81,190)

(84,914)

(91,822)

Creditors

(91,244)

(80,618)

(84,396)

(91,304)

Short term borrowings

(545)

(572)

(518)

(518)

Long Term Liabilities

 

 

(271,785)

(273,170)

(280,672)

(278,172)

Long term borrowings

(253,603)

(258,001)

(264,192)

(264,192)

Other long term liabilities

(18,182)

(15,169)

(16,480)

(13,980)

Net Assets

 

 

16,703

39,245

59,371

81,509

CASH FLOW

Operating Cash Flow

 

 

12,281

11,439

28,691

29,249

Net Interest

(9,103)

(8,365)

(10,716)

(12,424)

Tax

148

581

(1,383)

(5,906)

Capex

(11,724)

(10,595)

(12,357)

(12,000)

Acquisitions/disposals

1,168

(450)

0

0

Financing

0

0

0

0

Dividends

0

0

0

0

Net Cash Flow

(7,230)

(7,390)

4,235

(1,081)

Opening net debt/(cash)

 

 

216,682

224,974

232,329

228,377

HP finance leases initiated

0

0

(283)

0

Other

(1,062)

35

0

0

Closing net debt/(cash)

 

 

224,974

232,329

228,377

229,458

Source: Company data, Edison Investment Research. Note: Historical results are not restated for IFRS 9.

General disclaimer and copyright

This report has been commissioned by Findel and prepared and issued by Edison, in consideration of a fee payable by Findel. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Findel and prepared and issued by Edison, in consideration of a fee payable by Findel. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Financials

Numis Corporation — Cost discipline and franchise strength in evidence

In particularly difficult market conditions, Numis’s franchise strength and maintenance of the compensation ratio softened the impact of lower investment banking and equities revenue. Earnings per share were still down by two-thirds compared with H118 but, looking ahead, a return to a more favourable environment should allow Numis to deliver attractive returns on equity once more (historical five-year average c 20%).

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free