Back on course

Walker Greenbank 7 February 2017 Update

Walker Greenbank

Back on course

FY trading update

Care & household goods

7 February 2017

Price

202p

Market cap

£122m

Net cash (£m) at 31 July 2016

2.5

Shares in issue

60.6m

Free float

92%

Code

WGB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.5

(0.3)

4.4

Rel (local)

(1.1)

(6.8)

(13.9)

52-week high/low

218.5p

159.5p

Business description

Walker Greenbank is a luxury interior furnishings group, combining specialist design skills with high-quality upstream manufacturing facilities. Leading brands include Harlequin, Sanderson, Morris & Co, Scion, Anthology, Zoffany and Clarke & Clarke (from October 2016).

Next event

Preliminary FY17 results

26 April 2017

Analysts

Nigel Harrison

+44 (0)20 3077 5700

Toby Thorrington

+44 (0)20 3077 5721

Walker Greenbank is a research client of Edison Investment Research Limited

Walker Greenbank’s pre-close trading statement reinforces market estimates, puts its major flood largely into the history books and enables the market to concentrate on the future. April’s FY results announcement could signal the end of a prolonged period of consolidation for the shares.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/15

83.37

8.13

11.20

2.31

18.0

1.1

01/16

87.84

8.95

12.13

2.89

16.7

1.4

01/17e**

92.40

10.40

12.66

3.20

16.0

1.6

01/18e**

123.00

14.30

15.93

3.35

12.7

1.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments; EPS is diluted. **Clarke & Clarke consolidated from 1 October 2016.

Strong H2 recovery

As anticipated, Walker Greenbank has delivered a strong recovery from the impact of the December 2015 flash flood, which disrupted the H117 performance. FY17 revenue is indicated at £92.4m, consolidating £7.3m from Clarke & Clarke (C&C); this is marginally above our earlier £92.0m estimate. FY brand sales, excluding C&C, are down by 2.2% on a constant currency basis (+1.5% actual currency), compared with a 4.7% (-2.0%) reduction at the interim stage. Similar recoveries are indicated for all regions, reflecting a continued sound underlying performance in a challenging market place, but with improved supply of printed fabrics, following the return of the Lancaster factory to full production. As was seen at the interim stage, profits will be credited with further loss of profit payments from insurers. We leave our underlying FY17 PBT estimate of £10.4m unchanged.

Positive outlook

The key message is that the group is back on course. The warehouse is reported to be fully stocked, including a full range of printed textiles. The Brexit vote apparently is having more of an effect on UK demand than on exports. We understand from management that C&C is running in line with earlier management expectations, implying a material positive impact on FY18 earnings; we maintain our FY18 estimates. With the Lancaster factory re-equipped with more modern machinery, continued investment in new and exciting collections across the brands and with medium-term synergy benefits from C&C still to come, the outlook remains positive, despite the challenging trading conditions. With a £17m (gross) equity fund-raising falling short of the £25m cash element of the C&C acquisition, the group moved into debt during the second half. We believe that our FY17 net debt estimate of £5.5m remains realistic.

Valuation: Acquisition benefits not recognised

On the basis of CY18 prospective earnings, Walker Greenbank is rated at a 27% discount to its peer group (12.7x vs 17.7x). Forthcoming results should place the flood into history, enabling the market to look positively at the potential benefits of ongoing consistent investment, including the C&C acquisition.

Financial summary

Exhibit 1: Financial summary

£000s

2013

2014

2015

2016

2017e

2018e

Year end 31 January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

75,725

78,434

83,373

87,839

92,400

123,000

Cost of Sales

(30,193)

(30,347)

(32,674)

(35,875)

(37,738)

(54,120)

Gross Profit

45,532

48,087

50,699

51,964

54,662

68,880

EBITDA

 

 

8,625

9,730

10,689

11,764

13,500

17,400

Operating Profit (before amort. and except.)

6,577

7,513

8,340

9,126

10,700

14,500

Intangibles Amortisation

0

0

0

0

0

0

LTIP / Exceptionals

(746)

(970)

(1,005)

(924)

(900)

(900)

Other

0

0

0

0

0

0

Operating Profit

5,831

6,543

7,335

8,202

9,800

13,600

Net Interest/defined benefit pension charge

(897)

(1,048)

(1,006)

(864)

(900)

(900)

Other

0

0

0

0

0

0

Profit Before Tax (norm)

 

 

6,384

7,333

8,132

8,947

10,400

14,300

Profit Before Tax (FRS 3)

 

 

4,934

5,495

6,329

7,338

8,900

12,700

Tax

(972)

(451)

(1,224)

(1,466)

(2,250)

(2,700)

Profit After Tax (norm)

5,412

6,606

6,908

7,481

8,150

11,600

Profit After Tax (FRS 3)

3,962

5,044

5,105

5,872

6,650

10,000

Average Number of Shares Outstanding (m)

57.5

58.5

59.3

60.0

62.7

69.1

EPS - normalised (p)

 

 

9.41

11.30

11.64

12.47

13.00

16.79

EPS - normalised and fully diluted (p)

 

9.41

10.66

11.20

12.13

12.66

15.93

EPS - FRS 3 (p)

 

 

6.89

8.63

8.60

9.79

10.61

14.47

Dividend per share (p)

1.48

1.85

2.31

2.89

3.20

3.35

Gross Margin (%)

60.1

61.3

60.8

59.2

59.2

56.0

EBITDA Margin (%)

11.4

12.4

12.8

13.4

14.6

14.1

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

8.7

9.6

10.0

10.4

11.6

11.8

BALANCE SHEET

Fixed Assets

 

 

18,506

21,142

21,463

18,899

37,153

37,591

Intangible Assets

6,683

7,289

7,158

7,104

21,854

21,804

Tangible Assets

9,808

11,690

12,714

11,687

15,087

15,687

Deferred income tax assets

2,015

2,163

1,591

108

212

100

Current Assets

 

 

32,618

35,295

37,105

40,286

49,559

57,431

Stocks

16,825

18,428

22,004

18,104

29,000

33,104

Debtors

12,810

13,884

14,130

19,280

21,500

24,220

Cash

2,920

2,830

971

2,902

-941

107

Other

63

153

0

0

0

0

Current Liabilities

 

 

(17,340)

(19,435)

(20,710)

(19,392)

(27,900)

(26,682)

Creditors

(16,940)

(19,035)

(20,310)

(18,992)

(23,500)

(24,282)

Short term borrowings

(400)

(400)

(400)

(400)

(4,400)

(2,400)

Long Term Liabilities

 

 

(9,602)

(10,150)

(10,921)

(4,509)

(4,200)

(4,200)

Long term borrowings

(1,364)

(942)

(569)

(196)

(200)

(200)

Other long term liabilities

(8,238)

(9,208)

(10,352)

(4,313)

(4,000)

(4,000)

Net Assets

 

 

24,182

26,852

26,937

35,284

54,612

64,139

CASH FLOW

Operating Cash Flow

 

 

6,023

6,165

3,468

7,103

9,209

11,358

Net Interest

(209)

(152)

(181)

(149)

(300)

(200)

Tax

(16)

(18)

(32)

(630)

(2,354)

(2,588)

Capex

(3,119)

(4,735)

(3,230)

(2,510)

(3,500)

(3,500)

Acquisitions/disposals

0

0

0

0

(25,000)

0

Financing

(145)

(28)

(367)

(66)

15,950

(50)

Dividends

(711)

(900)

(1,144)

(1,444)

(1,852)

(1,973)

Net Cash Flow

1,823

332

(1,486)

2,304

(7,847)

3,048

Opening net debt/(cash)

 

 

667

(1,156)

(1,488)

(2)

(2,306)

5,541

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(1,156)

(1,488)

(2)

(2,306)

5,541

2,493

Source: Walker Greenbank accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Walker Greenbank and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8560

Level 12, Office 1205

95 Pitt St, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8560

Level 12, Office 1205

95 Pitt St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Walker Greenbank and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8560

Level 12, Office 1205

95 Pitt St, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8560

Level 12, Office 1205

95 Pitt St, Sydney

NSW 2000, Australia

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