Covered by insurance

Walker Greenbank 16 December 2015 Update

Walker Greenbank

Covered by insurance

Lancaster floods

Care & household goods

16 December 2016

Price

201.5p

Market cap

£120m

Net debt (£m) at 31 July 2015

0.6

Shares in issue

59.8m

Free float

92%

Code

WGB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.5)

(8.6)

8.0

Rel (local)

0.6

(7.2)

8.2

52-week high/low

242p

182p

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 event

Trading update

February 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

We consider the share price reaction (-7%) to the likely flood impact to be overdone. Losses are fully insured, with estimate reductions indicated to be recoverable when the claim is settled. With a negligible anticipated long-term impact, the weakness represents a buying opportunity.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/14

78.4

7.33

10.66

1.85

18.9

0.9

01/15

83.4

8.13

11.20

2.31

18.0

1.1

01/16e

86.5

7.40

10.13

2.70

19.9

1.3

01/17e

90.0

7.50

10.21

2.90

19.7

1.4

Note: *PBT and EPS (diluted) are normalised, excluding intangible amortisation, exceptional items, share-based payments and defined benefit pension contributions.

Fabric printing disrupted

Severe flooding has caused considerable damage and halted production at the group’s fabric printing factory. On present indications, digital printing will begin early in 2016, with a progressive restoration leading towards full production by April. The factory is responsible for the entire group requirement for printed fabrics and also supplies more than half its revenue to third-party customers, including many of the group brands’ leading competitors. At the interim stage of the current year, its revenues were up by 18% to £9.6m, with a substantial, but unspecified, increase in profit. The second half will have started well, with production running at peak levels over the September/November period to meet autumn and Christmas demand.

Estimates reduced, but outlook undiminished

Management indicates that flood damage and business disruption costs are fully covered by insurance; however, current year pre-tax profits are now indicated to be 15% below market estimates. The year to January 2017 will also be affected – we have tentatively adjusted our estimate by £1.9m. We understand that the shortfalls should be reimbursed (presumably as an exceptional item) when the insurance claim has been agreed. Post 2017, the long-term impact should not be material. Near term, the 2015 key selling period is been largely complete, reducing the impact of customer disappointment, while the lack of suitable UK competition will make it more difficult for third-party customers to re-source their product.

Balance sheet remains strong

The group balance sheet is well-equipped to withstand the impact. At January 2016, inventories may be lower than originally planned, but cash flow will also be lower and the group will almost certainly incur costs, which will not be recoverable until the following year. We now look for modest net funds at January 2016.

Valuation: Sector rating

With the exception of Burberry (cautious trading statement) members of Walker Greenbank's peer group have edged higher since our outlook report in October. A modest premium on the basis of calendar 2016 earnings (16.2-15.8x) reflects a balance between the strong medium-term outlook and the immediate difficulties.

Exhibit 1: Financial summary

£'000s

2012

2013

2014

2015

2016e

2017e

Year end 31 January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

74,014

75,725

78,434

83,373

86,500

90,000

Cost of Sales

(30,029)

(30,193)

(30,347)

(32,674)

(33,899)

(35,271)

Gross Profit

43,985

45,532

48,087

50,699

52,601

54,729

EBITDA

 

 

7,822

8,625

9,730

10,689

10,300

10,550

Operating Profit (before amort. and except.)

5,969

6,577

7,513

8,340

7,600

7,700

Intangibles Amortisation

0

0

0

0

0

0

LTIP / Exceptionals

(414)

(746)

(970)

(1,005)

(900)

(900)

Other

0

0

0

0

0

0

Operating Profit

5,555

5,831

6,543

7,335

6,700

6,800

Net Interest

(661)

(897)

(1,048)

(1,006)

(1,100)

(1,100)

Net defined benefit pension charge

407

704

868

798

900

900

Profit Before Tax (norm)

 

 

5,715

6,384

7,333

8,132

7,400

7,500

Profit Before Tax (FRS 3)

 

 

4,894

4,934

5,495

6,329

5,600

5,700

Tax

(1,065)

(972)

(451)

(1,224)

(1,200)

(1,250)

Profit After Tax (norm)

4,115

5,412

6,606

6,908

6,200

6,250

Profit After Tax (FRS 3)

3,829

3,962

5,044

5,105

4,400

4,450

Average Number of Shares Outstanding (m)

56.7

57.5

58.5

59.3

59.8

59.8

EPS - normalised (p)

 

 

7.26

9.41

11.30

11.64

10.36

10.45

EPS - normalised and fully diluted (p)

 

7.26

9.41

10.66

11.20

10.13

10.21

EPS - FRS 3 (p)

 

 

6.76

6.89

8.63

8.60

7.36

7.44

Dividend per share (p)

1.20

1.48

1.85

2.31

2.70

2.90

Gross Margin (%)

59.4

60.1

61.3

60.8

60.8

60.8

EBITDA Margin (%)

10.6

11.4

12.4

12.8

11.9

11.7

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

8.1

8.7

9.6

10.0

8.8

8.6

BALANCE SHEET

Fixed Assets

 

 

18,274

18,506

21,142

21,463

21,613

21,701

Intangible Assets

6,111

6,683

7,289

7,158

7,108

7,058

Tangible Assets

9,313

9,808

11,690

12,714

13,014

13,164

Deferred income tax assets

2,850

2,015

2,163

1,591

1,491

1,479

Current Assets

 

 

32,298

32,618

35,295

37,105

41,213

45,409

Stocks

17,000

16,825

18,428

22,004

22,729

25,149

Debtors

13,047

12,810

13,884

14,130

16,660

18,034

Cash

2,197

2,920

2,830

971

1,824

2,226

Other

54

63

153

0

0

0

Current Liabilities

 

 

(17,961)

(17,340)

(19,435)

(20,710)

(20,872)

(21,700)

Creditors

(17,561)

(16,940)

(19,035)

(20,310)

(20,472)

(21,300)

Short term borrowings

(400)

(400)

(400)

(400)

(400)

(400)

Long Term Liabilities

 

 

(9,559)

(9,602)

(10,150)

(10,921)

(11,750)

(12,250)

Long term borrowings

(2,464)

(1,364)

(942)

(569)

(1,000)

(1,000)

Other long term liabilities

(7,095)

(8,238)

(9,208)

(10,352)

(10,750)

(11,250)

Net Assets

 

 

23,052

24,182

26,852

26,937

30,204

33,160

CASH FLOW

Operating Cash Flow

 

 

4,530

6,023

6,165

3,468

6,809

7,085

Net Interest

(230)

(209)

(152)

(181)

(200)

(200)

Tax

(18)

(16)

(18)

(32)

(1,100)

(1,238)

Capex

(2,538)

(3,119)

(4,735)

(3,230)

(3,500)

(3,500)

Acquisitions/disposals

0

0

0

0

0

0

Financing

(24)

(145)

(28)

(367)

(50)

(50)

Dividends

(570)

(711)

(900)

(1,144)

(1,537)

(1,694)

Net Cash Flow

1,150

1,823

332

(1,486)

422

403

Opening net debt/(cash)

 

 

1,817

667

(1,156)

(1,488)

(2)

(424)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

667

(1,156)

(1,488)

(2)

(424)

(826)

Source: Company accounts, Edison Investment Research

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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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