Pack up your trou

Findel 5 February 2016 Update

Findel

Pack up your troubles…

Trading update

Retail

5 February 2016

Price

196.25p

Market cap

£170m

Net core debt (£m) at September 2015

96

Shares in issue

86.4m

Free float

100%

Code

FDL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.8)

(18.6)

(2.1)

Rel (local)

2.1

(11.8)

11.2

52-week high/low

255.0p

168.0p

Business description

Following the sale of Kitbag, Findel comprises two businesses: the home shopping business, Express Gifts and education supplies business Findel Education.

Next event

Post-close update

April 2016

Analysts

David Stoddart

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Findel is a research client of Edison Investment Research Limited

Findel has successfully completed the sale of Kitbag, further focusing the group on its home shopping and education divisions and reducing net debt. Although Q3 trading at Express was disappointing, there were encouraging signs of the long-term potential in that business.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

402.2

24.8

23.7

0.0

8.3

N/A

03/15

406.9

27.7

25.8

0.0

7.6

N/A

03/16e

406.1

25.0

24.2

0.0

8.1

N/A

03/17e

423.8

27.9

26.5

0.0

7.4

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Trading update

Group sales from continuing operations in the first 17 weeks of H216 increased 0.5%. Express grew sales 2.0%, with product sales up 0.8% and financial services revenues up 6.4%. Education further reduced its rate of sales decline in this relatively quiet period in its year and remains in line with guidance.

Potential remains at Express

Demand at Express improved, with orders placed since the half year 3.4% ahead
y-o-y compared with 2.6% H1 growth. December orders were particularly strong, up c 10% y-o-y despite the impact of unseasonable weather on clothing sales. However, a cautious approach to stock management for newer ranges limited availability in December, preventing the demand from being turned into sales. We noted after the interims that in an effort to upgrade its financial services operation, Express over-tightened credit controls. While this lowered bad debts, it reduced business volumes during the first 17 weeks of H216. Management can clearly respond to the stock and credit issues, which it controls, and explain about half of the estimate downgrades, so we expect to see recovery in both areas. The US$ FX headwinds that explain the rest of the downgrade persist for now.

Sale of Kitbag

Findel has announced that it has completed the sale of Kitbag for £11.55m in cash. This is £0.2m below the value we had used in our SOTP valuation. The deal reduces net debt and frees resource to develop Express and Education. It further simplifies the group such that a full-time group CEO is no longer justified. Current executive chairman David Sugden will step down when a replacement is found.

Valuation: Inexpensive

While trading in the first 17 weeks of H216 was disappointing, it was not a result of structural factors. We have lowered PBT forecasts from £27.2m in FY16 and £28.2m in FY17 with recovery to £34.1m in 2018e. The P/E remains low and results in an FY17 PEG ratio of only 0.76x, which seems too low for a company with a large trade shareholder on its register. Adjusting for estimate downgrades and Kitbag’s valuation, our SOTP is c £3.00 (down from £3.20).

Exhibit 1: Financial summary

£'000s

2013

2014

2015

2016e

2017e

2018e

Mar

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

491,233

402,200

406,930

406,091

423,846

449,399

Cost of Sales

(254,481)

(265,468)

(215,146)

(209,245)

(215,305)

(229,290)

Gross Profit

236,752

136,732

191,784

196,846

208,541

220,109

EBITDA

 

 

31,999

43,320

45,136

44,303

46,215

53,037

Operating Profit (before amort. and except.)

 

26,787

39,224

41,686

38,023

39,757

46,043

Intangible Amortisation

(2,621)

(2,848)

(3,029)

(1,763)

(1,068)

(1,285)

Operating profit pre exc post intang amortisation

24,166

36,376

38,657

36,260

38,689

44,758

Exceptionals

(11,031)

(16,928)

(27,036)

(3,839)

0

0

Other/share based payments

(1,847)

(1,698)

(861)

(1,000)

(1,000)

(1,000)

Operating Profit

11,288

17,750

10,760

31,421

37,689

43,758

Net Interest

(10,523)

(9,876)

(10,097)

(10,297)

(9,756)

(9,612)

Financial exceptional items

(283)

(472)

(136)

(100)

0

0

Profit Before Tax (norm)

 

 

11,796

24,802

27,699

24,963

27,933

34,145

Profit Before Tax (FRS 3)

 

 

482

7,402

527

21,024

27,933

34,145

Tax

1,103

(1,857)

(5,323)

(4,312)

(6,145)

(7,512)

Profit After Tax (norm)

12,130

22,563

21,994

20,770

22,788

27,633

Profit After Tax (FRS 3)

2,890

2,219

(25,261)

12,991

21,788

26,633

Average Number of Shares Outstanding (m)

84.8

84.8

85.2

85.9

85.9

85.9

EPS - normalised (p)

 

 

14.3

23.7

25.8

24.2

26.5

32.2

EPS - normalised and fully diluted (p)

 

12.1

19.9

22.2

21.0

23.0

27.9

EPS - (IFRS) (p)

 

 

3.4

2.6

(29.7)

15.1

25.4

31.0

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

48.2

34.0

47.1

48.5

49.2

49.0

EBITDA Margin (%)

6.5

10.8

11.1

10.9

10.9

11.8

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

5.5

9.8

10.2

9.4

9.4

10.2

BALANCE SHEET

Fixed Assets

 

 

140,839

133,047

94,428

83,720

91,195

97,915

Intangible Assets

100,892

90,337

50,217

34,769

38,701

42,416

Tangible Assets

31,329

34,644

35,070

38,994

42,536

45,542

Investments

8,618

8,066

9,141

9,957

9,957

9,957

Current Assets

 

 

327,016

301,960

328,250

339,523

355,417

378,717

Stocks

58,896

64,406

65,405

73,551

63,282

67,547

Debtors

210,234

213,284

224,375

230,740

253,566

274,412

Cash

34,023

24,270

38,470

35,232

38,569

36,758

Other

23,863

0

0

0

0

0

Current Liabilities

 

 

(86,941)

(82,861)

(82,340)

(70,949)

(73,280)

(77,417)

Creditors

(86,941)

(82,861)

(82,340)

(70,949)

(73,280)

(77,417)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(280,443)

(240,498)

(257,628)

(253,772)

(250,248)

(249,194)

Long term borrowings

(259,176)

(231,223)

(245,021)

(245,395)

(245,395)

(245,395)

Other long term liabilities

(21,267)

(9,275)

(12,607)

(8,377)

(4,853)

(3,799)

Net Assets

 

 

100,471

111,648

82,710

98,522

123,084

150,021

CASH FLOW

Operating Cash Flow

 

 

26,500

26,097

19,250

2,190

32,093

30,314

Net Interest

(10,000)

(9,482)

(9,938)

(10,091)

(9,756)

(9,612)

Tax

(1,761)

(998)

(1,396)

(4,000)

(4,000)

(7,512)

Capex

(8,259)

(11,831)

(10,269)

(15,000)

(15,000)

(15,000)

Acquisitions/disposals

0

15,461

1,720

23,300

0

0

Financing

0

0

(500)

0

0

0

Dividends

0

0

0

0

0

0

Net Cash Flow

6,480

19,247

(1,133)

(3,601)

3,337

(1,811)

Opening net debt/(cash)

 

 

230,659

226,168

206,953

206,551

210,163

206,826

HP finance leases initiated

0

0

0

0

0

0

Other

(1,989)

(32)

1,535

(11)

0

0

Closing net debt/(cash)

 

 

226,168

206,953

206,551

210,163

206,826

208,637

Source: Findel, Edison Investment Research

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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

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NSW 2000, Australia

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Level 15, 171 Featherston St

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