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Cautious optimism entering H2

Walker Greenbank 12 August 2020 Update
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Walker Greenbank

Cautious optimism entering H2

H120 pre-close update

Care & household goods

12 August 2020

Price

45.0p

Market cap

£32m

Net cash (£m) at end January 2020
(excludes IFRS 16 lease liabilities £8.4m)

1.3

Shares in issue

70.9m

Free float

92%

Code

WGB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.1)

8.4

(46.4)

Rel (local)

(2.7)

3.3

(38.2)

52-week high/low

91.0p

27.5p

Business description

Walker Greenbank is a luxury interior furnishings group combining specialist design skills with high-quality upstream UK manufacturing facilities. Leading brands include Harlequin, Sanderson, Morris & Co, Scion, Anthology, Zoffany and Clarke & Clarke. FY19 revenue was split UK 53%, international 41% and licence income 6%.

Next events

H121 results

October – date tbc

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Walker Greenbank is a research client of Edison Investment Research Limited

A firm end to H120 trading further narrowed the COVID-19 affected year-on-year revenue deficit, with a positive start to H2 also so far. The company has emerged from lockdown conditions in a healthy net cash position and well-placed to develop under a new senior operational team. A degree of market caution is required, but Walker Greenbank is clearly in a better position currently than might have been anticipated by management previously.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/18**

112.2

12.7

14.4

4.4

3.1

9.8

01/19

113.3

9.5

10.8

3.2

4.2

7.1

01/20

111.5

7.4

9.2

0.5

4.9

1.1

Note: *PBT and EPS (fully diluted) are company normalised, excluding pension scheme costs, LTIP charges and exceptional items. **Restated for IFRS 15. The FY20 DPS represents the declared interim dividend only; no final dividend was announced.

Good end to COVID-19 affected H1 trading

Having emerged from UK lockdown conditions and restarted manufacturing operations in May, Walker Greenbank’s rolling four-weekly performance has improved and markedly so at the period end. For H120 as a whole, Brands product sales were down 28% y-o-y (having been -35% for the first five months). Northern Europe was the best of the major sales regions (-13%), while the UK and the US were both just over 30% lower. As one would expect, core (non-apparel) licence income was relatively robust, being down just 10% against H1 last year. Third-party manufacturing sales performance matched that seen for UK/US Brands products and we believe that inter-company revenues (ie group manufactured Brands products) were in line with the prior year comparator. FX translation did not have a material impact on sterling reported revenues. The company made no comments regarding overall levels of profitability.

Careful cash management boosts liquidity headroom

Despite lower headline sales, Walker Greenbank has sustained good cash control throughout the trading period, with accelerating inflows as the rate of recovery has improved. Specifically, inferred net cash was c £4.5m at the end of July versus c £2.8m a month earlier and £1.3m at the beginning of the year. As a result, including existing committed banking arrangements (ie a £12.5m RCF and £2.5m overdraft facility), the company retained almost £20m liquidity headroom at the period end.

Watchful approach but grounds for optimism

Walker Greenbank enters H2 with good momentum based on orders on hand and sample enquiry levels. The period contains some usually strong sales months (eg October, November), and further recovery in traditional retail channels in parallel with sustained strength in digital ones would be beneficial here. Additional collection launches are planned during the second half, which should be expected to boost sales impetus. This said, we are wary of extrapolating July’s performance forward and where underlying demand settles in the coming months is still subject to greater than normal uncertainty. Hence, our estimates remain suspended.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2018R

2019

2020

Year end January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

75.7

78.4

83.4

87.8

92.4

112.2

113.3

111.5

Cost of Sales

 

 

(30.2)

(30.3)

(32.7)

(35.9)

(36.2)

(44.0)

(45.3)

(43.3)

Gross Profit

 

 

45.5

48.1

50.7

52.0

56.2

68.2

68.0

68.1

EBITDA (pre IFRS 16)

 

 

8.6

9.7

10.7

11.8

13.1

15.7

12.9

11.0

Op Profit - Edison norm

 

 

5.8

6.5

7.3

8.2

9.5

12.2

9.3

7.0

Op Profit - company adjusted

 

 

6.6

7.5

8.3

9.1

10.6

13.0

9.8

7.8

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.3)

(0.3)

(0.4)

Intangible Amort – acquired

 

 

0

0

0

0

(0.3)

(1.0)

(1.0)

(1.0)

Pension net finance charge

(0.7)

(0.9)

(0.8)

(0.7)

(0.1)

(0.2)

(0.2)

(0.2)

Exceptionals

 

 

0

0

0

0

(1.8)

2.3

(2.2)

(1.0)

Other

 

 

0

0

0

0

0

0

0

0

Profit Before Tax (Edison norm)

 

 

 

 

 

9.3

11.9

9.0

6.6

Profit Before Tax (company norm)

 

6.4

7.3

8.1

8.9

10.4

12.7

9.5

7.4

Profit Before Tax (statutory)

 

 

4.9

5.5

6.3

7.3

7.0

13.0

5.6

4.4

Tax

 

 

(1.0)

(0.5)

(1.2)

(1.5)

(1.6)

(1.1)

(1.2)

(0.7)

Profit After Tax (norm)

 

 

5.4

6.6

6.9

7.5

8.2

10.0

7.3

6.3

Profit After Tax (statutory)

 

 

4.0

5.0

5.1

5.9

5.4

11.9

4.4

3.7

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

57.5

58.5

59.3

60.0

62.7

70.4

71.0

71.0

EPS - Edison norm (p) FD

 

 

 

 

 

 

11.5

13.3

10.1

7.9

EPS - company norm (p) FD

 

 

9.4

10.7

11.2

11.6

12.9

14.4

10.8

9.2

EPS - statutory (p)

 

 

6.9

8.6

8.6

9.8

8.6

16.9

6.2

5.2

Dividend per share (p)

 

 

1.5

1.9

2.3

2.9

3.6

4.4

3.2

0.5

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

60.1

61.3

60.8

59.2

60.8

60.8

60.0

61.1

EBITDA Margin (%)

 

 

11.4

12.4

12.8

13.4

14.1

14.0

11.4

9.9

Op Margin (Edison norm) (%)

 

7.7

8.3

8.8

9.3

10.2

10.9

8.2

6.3

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

18.5

21.1

21.5

18.9

47.5

47.7

46.0

52.3

Intangible Assets

 

 

6.7

7.3

7.2

7.1

31.6

31.8

30.8

29.8

Tangible Assets

 

 

9.8

11.7

12.7

11.7

15.8

16.0

15.2

22.5

Investments

 

 

2.0

2.2

1.6

0.1

0.0

0.0

0.0

0.0

Current Assets

 

 

32.6

35.3

37.1

40.3

51.3

52.1

49.3

52.1

Stocks

 

 

16.8

18.4

22.0

18.1

30.3

29.5

28.0

28.5

Debtors

 

 

12.8

13.9

14.1

19.3

19.5

21.3

18.9

20.5

Cash

 

 

2.9

2.8

1.0

2.9

1.5

1.3

2.4

3.1

Other

 

 

0.1

0.2

0.0

0.0

 

 

 

 

Current Liabilities

 

 

(17.3)

(19.4)

(20.7)

(19.4)

(34.8)

(28.9)

(23.8)

(27.5)

Creditors

 

 

(16.9)

(19.0)

(20.3)

(19.0)

(28.0)

(22.4)

(21.8)

(25.8)

Short term borrowings

 

 

(0.4)

(0.4)

(0.4)

(0.4)

(6.8)

(6.6)

(2.0)

(1.7)

Long Term Liabilities

 

 

(9.6)

(10.2)

(10.9)

(4.5)

(12.7)

(9.1)

(10.6)

(12.1)

Long term borrowings

 

 

(1.4)

(0.9)

(0.6)

(0.2)

0.0

0.0

0.0

0.0

Other long term liabilities

 

 

(8.2)

(9.2)

(10.4)

(4.3)

(12.7)

(9.1)

(10.6)

(12.1)

Net Assets

 

 

24.2

26.9

26.9

35.3

51.3

61.8

60.9

64.8

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

6.0

6.2

3.5

7.1

12.4

7.0

12.6

9.6

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.1)

(0.2)

(0.2)

(0.3)

(0.5)

Tax

 

 

(0.0)

(0.0)

(0.0)

(0.6)

(2.3)

(2.2)

(0.8)

(0.8)

Capex

 

 

(3.1)

(4.7)

(3.2)

(2.5)

(6.7)

(3.5)

(2.8)

(2.4)

Acquisitions/disposals

 

 

0.0

0.0

0.0

0.0

(27.1)

0.0

0.0

0.0

Financing

 

 

(0.1)

(0.0)

(0.4)

(0.1)

18.3

1.8

0.0

0.0

Dividends

 

 

(0.7)

(0.9)

(1.1)

(1.4)

(1.8)

(2.7)

(3.1)

(2.2)

Net Cash Flow

 

 

1.8

0.3

(1.5)

2.3

(7.4)

0.1

5.7

3.7

Opening net debt/(cash)

 

 

0.7

(1.2)

(1.5)

(0.0)

(2.3)

5.3

5.3

(0.4)

Net finance leases

 

 

0.0

0.0

0.0

0.0

(0.0)

0.0

0.0

(2.7)

Other

 

 

0.0

0.0

0.0

0.0

(0.2)

(0.1)

0.0

(0.0)

Closing net debt/(cash)

 

 

(1.2)

(1.5)

(0.0)

(2.3)

5.3

5.3

(0.4)

(1.3)

Lease finance (under IFRS 16)

 

 

 

 

 

 

 

 

 

8.4

Source: Walker Greenbank, Edison Investment Research. Note: Edison norm deducts pension scheme and LTIP costs from company adjusted norm. 2018 results restated for IFRS 15 Revenue from Contracts with Customers; the primary P&L effects were to reclassify some marketing materials/services as net other income and carriage recoveries to revenue and, as they were previously netted out of distribution costs, increase this cost line. From FY20 figures are presented on an IFRS 16 basis.

General disclaimer and copyright

This report has been commissioned by Walker Greenbank and prepared and issued by Edison, in consideration of a fee payable by Walker Greenbank. 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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 Walker Greenbank and prepared and issued by Edison, in consideration of a fee payable by Walker Greenbank. 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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

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