Becoming clearer

Walker Greenbank 3 August 2016 Update

Walker Greenbank

Becoming clearer

Trading update

Care & household goods

3 August 2016

Price

197.0p

Market cap

£119m

Net cash (£m) at 31 January 2016

2.3

Shares in issue

60.2m

Free float

92%

Code

WGB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

11.0

(0.8)

(15.1)

Rel (local)

9.3

(6.0)

(14.2)

52-week high/low

238.0p

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 and Zoffany.

Next events

Interim results

Mid-October 2016

Analysts

Nigel Harrison

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Walker Greenbank is a research client of Edison Investment Research Limited

Things are clearing: trading is in line with expectations; the Lancaster factory is almost back to full production and working on its order backlog; insurance payments are coming in; and new business streams are being established. The share price is justifiably holding up well.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/15

83.37

8.13

11.20

2.31

17.6

1.2

01/16

87.84

8.95

12.13

2.89

16.2

1.5

01/17e

90.00

7.50

10.10

3.00

19.5

1.5

01/18e

98.00

9.80

12.92

3.15

15.2

1.6

Note: * PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments; EPS is diluted.

In line with board expectations

The key message in the half-year trading update is that trading is in line with board expectations. Under the continued influence of the major flood last December at its fabric printing business, Brand sales are 2.1% down in reported currency (4.2% in ccy), with an improvement in export sales just failing to balance a 6.1% drop in UK sales. There seems little doubt that interim results, to be announced in mid-October, will show underlying pre-tax profits, before the add back of the loss of profits claim, significantly below the £3.68m declared for the previous year.

Positive vibes

The group has announced receipt of a further £4.0m, making £12m to date, from its insurers. We look for further payments to be agreed and paid in the coming months. The factory is reported to be almost back to full production and making sound progress towards fulfilling the backlog of printed fabric orders for both internal and third-party customers; replacement capacity includes some more modern and more efficient machinery, raising the medium-term potential. Other positive vibes include the indication that Brexit will be marginally positive from a currency viewpoint, while last month’s announcement of a new licensing agreement for the supply of bed linen into the US is another indication that the group continues to look forward positively. We introduced a profit estimate of £7.5m for FY17 several months ago taking account of likely damage and loss of profits related to the flood; the extent of the insurance payments already agreed suggests the balance between underlying trading and loss of profits receipts will need revising, but we await the interim results announcement before adjusting this target. More significantly, we remain optimistic that the underlying performance for the full year, following the precedent set last year and consolidating loss of profits receipts, will meet our earlier adjusted pre-tax estimate of £9.4m. We do not propose to change our FY18 estimates.

Valuation: Sound value

The Walker Greenbank share price continues to hold steady in the face of uncertainty. A prospective rating of 15.6x CY17 earnings is 5.8% below the 16.5x of its peer group. This represents sound value in the context of the group’s consistent record and recovery potential from short-term challenges.

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

90,000

98,000

Cost of Sales

(30,193)

(30,347)

(32,674)

(35,875)

(36,758)

(40,025)

Gross Profit

45,532

48,087

50,699

51,964

53,242

57,975

EBITDA

 

 

8,625

9,730

10,689

11,764

10,400

12,800

Operating Profit (before amort. and except.)

6,577

7,513

8,340

9,126

7,700

10,000

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

6,800

9,100

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

7,500

9,800

Profit Before Tax (FRS 3)

 

 

4,934

5,495

6,329

7,338

5,900

8,200

Tax

(972)

(451)

(1,224)

(1,466)

(1,250)

(1,800)

Profit After Tax (norm)

5,412

6,606

6,908

7,481

6,250

8,000

Profit After Tax (FRS 3)

3,962

5,044

5,105

5,872

4,650

6,400

Average Number of Shares Outstanding (m)

57.5

58.5

59.3

60.0

60.2

60.2

EPS - normalised (p)

 

 

9.41

11.30

11.64

12.47

10.38

13.29

EPS - normalised and fully diluted (p)

 

9.41

10.66

11.20

12.13

10.10

12.92

EPS - FRS 3 (p)

 

 

6.89

8.63

8.60

9.79

7.72

10.63

Dividend per share (p)

1.48

1.85

2.31

2.89

3.00

3.15

Gross Margin (%)

60.1

61.3

60.8

59.2

59.2

59.2

EBITDA Margin (%)

11.4

12.4

12.8

13.4

11.6

13.1

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

8.7

9.6

10.0

10.4

8.6

10.2

BALANCE SHEET

Fixed Assets

 

 

18,506

21,142

21,463

18,899

21,203

21,716

Intangible Assets

6,683

7,289

7,158

7,104

7,054

7,004

Tangible Assets

9,808

11,690

12,714

11,687

13,987

14,687

Deferred income tax assets

2,015

2,163

1,591

108

162

25

Current Assets

 

 

32,618

35,295

37,105

40,286

40,689

48,045

Stocks

16,825

18,428

22,004

18,104

20,500

23,322

Debtors

12,810

13,884

14,130

19,280

15,000

16,833

Cash

2,920

2,830

971

2,902

5,189

7,889

Other

63

153

0

0

0

0

Current Liabilities

 

 

(17,340)

(19,435)

(20,710)

(19,392)

(20,900)

(22,722)

Creditors

(16,940)

(19,035)

(20,310)

(18,992)

(20,500)

(22,322)

Short term borrowings

(400)

(400)

(400)

(400)

(400)

(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

36,792

42,838

CASH FLOW

Operating Cash Flow

 

 

6,023

6,165

3,468

7,103

9,109

9,967

Net Interest

(209)

(152)

(181)

(149)

(200)

(200)

Tax

(16)

(18)

(32)

(630)

(1,304)

(1,663)

Capex

(3,119)

(4,735)

(3,230)

(2,510)

(3,500)

(3,500)

Acquisitions/disposals

0

0

0

0

0

0

Financing

(145)

(28)

(367)

(66)

(50)

(50)

Dividends

(711)

(900)

(1,144)

(1,444)

(1,772)

(1,854)

Net Cash Flow

1,823

332

(1,486)

2,304

2,283

2,700

Opening net debt/(cash)

 

 

667

(1,156)

(1,488)

(2)

(2,306)

(4,589)

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)

(4,589)

(7,289)

Source: Walker Greenbank accounts, Edison Investment Research. Note: FY16 profit includes £1.4m loss of profits insurance payment.

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, Sydney and Wellington. 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 2016 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 2016. “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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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, Sydney and Wellington. 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 2016 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 2016. “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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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