Estimates in line

Walker Greenbank 3 February 2016 Update

Walker Greenbank

Estimates in line

Full-year trading update

Care & household goods

3 February 2016

Price

195.0p

Market cap

£117m

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

(3.7)

(3)

(0.8)

Rel (local)

(0.3)

1.7

8.6

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

Prelim results

Mid April

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

Walker Greenbank’s trading statement indicates profits in line with market expectations. A likely interim insurance payment covering lost profits and asset damage, relating to the December 2015 flood, is expected in due course. We hope to restore our pre-flood profit estimates when the payment is confirmed.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/14

78.4

7.33

10.66

1.85

18.3

1.0

01/15

83.4

8.13

11.20

2.31

17.4

1.2

01/16e

88.2

7.40

10.13

2.70

19.2

1.4

01/17e

90.0

7.50

10.21

2.90

19.1

1.5

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

Revenues in line with expectations

The clear message in the Walker Greenbank year-end update is that trading is in line with market expectations, despite the more challenging global climate. Brand sales are reported 6.4% ahead in constant currency 5.7% in reported currency; a 4.8% rise in UK sales (61% of the total) has been supported by continued strong export progress, with increased sales in the US, Western Europe and the rest of the world. Manufacturing operations also performed strongly, despite the cessation of trading at the fabric printing business following the flash flood in early December. Overall full-year revenue rose by 5.8% to £88.2m.

Profit estimates may be restored

Management has indicated that declared profits (to be announced in mid April) may also consolidate an interim payment from its insurers. We understand that this payment will be declared as an exceptional item, comprising costs incurred in tackling the flood damage and the anticipated loss of profit for the period to 31 January 2016. On this basis, it is quite likely that we will be able to reinstate our pre-flood estimates of underlying pre-tax profits of £8.7m and £9.4m for the years to January 2016 and 2017. However, at this stage, we have decided to await an announcement from the company to the effect that such a payment has been agreed and received before making any adjustments.

Finances remain sound

We adjusted our cash flow estimates in December. The timing of cash movements related to the flood is difficult to predict; however, group finances remain strong.

Valuation: Sector rating undervalues the shares

On the basis of the above EPS figures, Walker Greenbank shares are rated at a 23% premium rating relative to its peer group. However, reinstatement of earlier estimates would give the shares a similar rating (15.5x vs 15.4x) on the basis of prospective calendar 2016 earnings. We believe that this reflects neither the group’s strong medium-term record nor its positive medium-term outlook, although the market is unlikely to recognise this fully until the interim payment is confirmed.

Financial summary

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

88,200

90,000

Cost of Sales

(30,029)

(30,193)

(30,347)

(32,674)

(34,566)

(35,271)

Gross Profit

43,985

45,532

48,087

50,699

53,634

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

11.7

11.7

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

8.1

8.7

9.6

10.0

8.6

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

41,627

45,421

Stocks

17,000

16,825

18,428

22,004

23,178

25,151

Debtors

13,047

12,810

13,884

14,130

16,948

17,994

Cash

2,197

2,920

2,830

971

1,501

2,276

Other

54

63

153

0

0

0

Current Liabilities

 

 

(17,961)

(17,340)

(19,435)

(20,710)

(21,286)

(21,712)

Creditors

(17,561)

(16,940)

(19,035)

(20,310)

(20,886)

(21,312)

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

6,486

7,457

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)

99

776

Opening net debt/(cash)

 

 

1,817

667

(1,156)

(1,488)

(2)

(101)

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)

(101)

(876)

Source: Company accounts, Edison Investment Research

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Germany

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United Kingdom

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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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