Findel |
Pack up your troubles… |
Trading update |
Retail |
5 February 2016 |
Share price performance
Business description
Next event
Analysts
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* |
EPS* |
DPS |
P/E |
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
|