Maintaining momentum

Walker Greenbank 21 June 2017 Update
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Walker Greenbank

Maintaining momentum

AGM update

Care & household goods

21 June 2017

Price

202p

Market cap

£142m

Net debt (£m) at end January 2017

5.3

Shares in issue

70.4m

Free float

92%

Code

WGB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.9)

(9.1)

12.0

Rel (local)

(5.9)

(10.1)

(6.6)

52-week high/low

222.5p

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.

Next events

Ex-dividend: FY17 final DPS 3.06p

21 July

FY17 final DPS paid

11 August

H118 results

October

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Walker Greenbank is a research client of Edison Investment Research Limited

AGM comments were very much in line with those at the beginning of the year and our estimates are unchanged. Walker Greenbank is on track for a good profit uplift in FY18 derived from organic progress in both divisions and a full year contribution from Clarke & Clarke. Moreover, the business retains significant financial flexibility for further investment. We would expect the share price to regain or exceed the higher levels seen earlier this year in due course.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/16

87.8

8.9

11.6

2.9

17.4

1.4

01/17

92.4

10.4

12.9

3.6

15.6

1.8

01/18e

114.7

14.3

16.1

4.4

12.6

2.2

01/19e

119.7

15.2

17.0

5.1

11.8

2.5

Note: *PBT and EPS (fully diluted) are normalised, excluding exceptional items and LTIP charges.

Early H1 trading trends confirmed

The Brands division’s organic revenue growth in the first four and a half months of FY18 was +4.5% y-o-y (or +1.1% at constant currency), which is in line with figures cited for the first 12 weeks of the year (ie +4.4% and +0.9%, respectively). Demand in overseas markets has been firmer than in the UK, which is broadly flat. Clarke & Clarke (acquired in October 2016) is trading in line with management expectations and will contribute an additional six months’ trading in Brands’ H118 results. The Manufacturing division’s year-to-date revenue performance was not quantified but is said to be on an improving trend, again with a pick-up in export orders noted. H117 trading was affected by flood-related factory disruption and, hence, will be a relatively weak comparator for H118.

Insurance claim complete, trading progress expected

The company’s insurance claim relating to the Lancaster (ie Standfast & Barracks) factory flood has now reached the full settlement. A £2.4m final cash payment is expected to be received by the end of H118, which together with previous receipts – including £1.5m outstanding at the end of FY17, now received – equates to total claim proceeds of £19.3m. The final settlement is in line with existing guidance. By the end of July, we will have more visibility on regained momentum in Manufacturing and trading at Clarke & Clarke, and the development of new and existing markets outside the UK is likely to continue to be a feature.

Valuation: Good prospects

Walker Greenbank’s share price has eased back since the end of May and has now under-performed the FTSE All Share Index by c 9% since its FY17 results announcement in April. Our expectations are unchanged and the prospects for a strong step forward in profitability in FY18 with further progress thereafter remain good in our view. We do not feel that this earnings profile is fully factored into the valuation, with Walker Greenbank now trading on a current year P/E of 12.6x and EV/EBITDA (before pension cash adjustments) of 9.1x.

Financial summary

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2018e

2019e

2020e

Year end 31 January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

75.7

78.4

83.4

87.8

92.4

114.7

119.7

124.2

Cost of Sales

 

 

(30.2)

(30.3)

(32.7)

(35.9)

(36.2)

(45.0)

(46.9)

(48.7)

Gross Profit

 

 

45.5

48.1

50.7

52.0

56.2

69.7

72.7

75.5

EBITDA

 

 

8.6

9.7

10.7

11.8

12.7

17.4

18.4

19.3

Operating Profit (before GW, except. & LTIP)

6.6

7.5

8.3

9.1

10.6

14.6

15.4

16.1

Operating Profit (before GW and except.) - reported

5.8

6.5

7.3

8.2

9.8

13.6

14.4

15.1

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.3)

(0.2)

(0.1)

Intangible Amortisation - 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)

(0.5)

(0.7)

(0.7)

(0.7)

Exceptionals

 

 

0

0

0

0

(1.8)

1.0

0.0

0.0

Other

 

 

0

0

0

0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

6.4

7.3

8.1

8.9

10.4

14.3

15.2

16.0

Profit Before Tax (FRS 3)

 

 

4.9

5.5

6.3

7.3

7.0

12.7

12.6

13.3

Tax

 

 

(1.0)

(0.5)

(1.2)

(1.5)

(1.6)

(2.7)

(2.7)

(2.7)

Profit After Tax (norm)

 

 

5.4

6.6

6.9

7.5

8.6

11.6

12.5

13.3

Profit After Tax (FRS 3)

 

 

4.0

5.0

5.1

5.9

5.4

10.0

9.9

10.6

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

57.5

58.5

59.3

60.0

62.7

70.2

71.0

71.4

EPS - normalised (p) FD

 

 

9.4

10.7

11.2

11.6

12.9

16.1

17.0

18.0

EPS - FRS 3 (p)

 

 

6.9

8.6

8.6

9.8

8.6

14.2

13.9

14.9

Dividend per share (p)

 

 

1.5

1.9

2.3

2.9

3.6

4.4

5.1

5.8

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

60.1

61.3

60.8

59.2

60.8

60.8

60.8

60.8

EBITDA Margin (%)

 

 

11.4

12.4

12.8

13.4

13.7

15.2

15.3

15.5

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

7.7

8.3

8.8

9.3

10.7

11.9

12.0

12.1

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

18.5

21.1

21.5

18.9

47.5

46.2

44.7

43.0

Intangible Assets

 

 

6.7

7.3

7.2

7.1

31.6

30.6

29.6

28.6

Tangible Assets

 

 

9.8

11.7

12.7

11.7

15.8

15.6

15.1

14.4

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

60.6

61.6

69.7

Stocks

 

 

16.8

18.4

22.0

18.1

30.3

31.6

33.0

34.2

Debtors

 

 

12.8

13.9

14.1

19.3

15.5

17.7

18.4

19.0

Cash

 

 

2.9

2.8

1.0

2.9

1.5

5.9

4.9

11.2

Other

 

 

0.1

0.2

0.0

0.0

 

 

 

 

Current Liabilities

 

 

(17.3)

(19.4)

(20.7)

(19.4)

(34.8)

(35.6)

(30.4)

(32.0)

Creditors

 

 

(16.9)

(19.0)

(20.3)

(19.0)

(28.0)

(28.7)

(30.4)

(32.0)

Short term borrowings

 

 

(0.4)

(0.4)

(0.4)

(0.4)

(6.8)

(6.8)

0.0

0.0

Long Term Liabilities

 

 

(9.6)

(10.2)

(10.9)

(4.5)

(12.7)

(9.9)

(7.1)

(4.1)

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)

(9.9)

(7.1)

(4.1)

Net Assets

 

 

24.2

26.9

26.9

35.3

51.3

61.3

68.8

76.6

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

6.0

6.2

3.5

7.1

12.4

13.5

15.4

16.3

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.1)

(0.2)

(0.3)

(0.2)

(0.1)

Tax

 

 

(0.0)

(0.0)

(0.0)

(0.6)

(2.3)

(2.7)

(2.7)

(2.7)

Capex

 

 

(3.1)

(4.7)

(3.2)

(2.5)

(6.7)

(3.5)

(3.5)

(3.5)

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

0.0

0.0

0.0

Dividends

 

 

(0.7)

(0.9)

(1.1)

(1.4)

(1.8)

(2.6)

(3.2)

(3.7)

Net Cash Flow

 

 

1.8

0.3

(1.5)

2.3

(7.4)

4.4

5.8

6.3

Opening net debt/(cash)

 

 

0.7

(1.2)

(1.5)

(0.0)

(2.3)

5.3

0.9

(4.9)

HP finance leases initiated

 

 

0.0

0.0

0.0

0.0

(0.0)

0.0

0.0

0.0

Other

 

 

0.0

0.0

0.0

0.0

(0.2)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(1.2)

(1.5)

(0.0)

(2.3)

5.3

0.9

(4.9)

(11.2)

Source: Walker Greenbank accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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