Peak period starts strongly

Findel 17 October 2018 Update
Download PDF

Findel

Peak period starts strongly

Trading update

Retail

17 October 2018

Price

270p

Market cap

£233m

Core net debt (£m) at 30 September 2018

81

Shares in issue

86.4m

Free float

69%

Code

FDL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.3

(9.4)

52.5

Rel (local)

7.3

(2.4)

62.3

52-week high/low

302.0p

150.2p

Business description

Findel is a multi-channel retailer operating across the business-to-consumer and business-to-business market places. It is a market leader in the home shopping and educational supplies sectors in the UK.

Analysts

Paul Hickman

+44 (0)20 3681 2501

Kate Heseltine

+44 (0)20 3077 5700

Findel is a research client of Edison Investment Research Limited

Findel’s pre-Christmas peak period has started strongly over recent weeks. Management retains its guidance for the full-year results and we retain our forecast of c 6% earnings growth. Past negatives, which have complicated the investment case, continue to be resolved: turnaround is on course at the smaller Education division, financial services redress is in the final stages and the balance sheet has strengthened further. We see no reason to change our valuation of 428p, which is c 60% above the current share price.

Year end

Revenue (£m)

EBITDA
(£m)

PBT*
(p)

EPS*
(p)

P/E
(x)

EV/EBITDA

(x)

03/17

457.0

40.8

22.2

20.4

13.2

7.7

03/18

479.0

46.6

26.8

25.9

10.4

6.7

03/19e

508.8

52.1

28.5

27.5

9.8

6.0

03/20e

538.6

55.7

30.9

29.8

9.1

5.6

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

Peak trading period starts strongly at Express

Express Gifts, trading as Studio, grew its revenue by 8% for the first 28 weeks to 12 October, which would be the envy of many terrestrial retailers. Express sells 70% of its goods online with the other 30% remaining in the catalogue model. Revenue growth was lower than the c 11% for the first 16 weeks of the financial year, depressed by the weak months of August and September. However, the start of the autumn marketing campaign that leads into its peak months has seen customers responding much more strongly, giving us confidence in our 8.5% growth forecast for the year.

Success continues for Education turnaround plan

Findel’s Online Value strategy is working emphatically with ordering through its platform increasing from c 20% at its start in September 2017 to over 55% now. Despite the continuing very tough trading environment, growth in the core UK customer base of 4% over the last year is evidence of an increasing market share.

Balance sheet improvement

Core net debt at the end of September 2018 was £81m, about £9m lower than the same date last year. Findel is steadily bringing this figure down – at March 2018 it decreased y-o-y by £7m to £73.8m. We are not changing our balance sheet forecast, but the indication is positive. Also, the run-off of the £8.6m March 2018 provision representing the tail end of earlier years’ recognition of financial redress is proceeding to plan and is in the final stages.

Valuation: We retain our 428p per share

We make no change to our forecast, projecting c 6% pre-tax and EPS growth for the full year. Accordingly, we retain our valuation of 428p per share, reflecting a blend of DCF and peer comparison metrics.

Trading statement at 28 weeks

Findel has reported trading results for a slightly longer period than the first half to provide comparability. The phasing of the pre-Christmas marketing campaign was adjusted across the end of September and start of October 2017, so it did not conflict with the introduction of the Financier credit platform in early October 2017. This year's campaign has returned to normalised patterns, so the trading statement refers to a 28-week period to 12 October to remove this distortion.

Revenue growth at Express in line with expectations

Revenue has grown 8% for the first 28 weeks of the year. This is lower than the c 11% for the first 16 weeks reported in June, as August and September were slow months throughout retailing. However, we understand that sales in recent weeks are strongly ahead, and we therefore remain confident in our 8.5% growth forecast for the full year.

Findel Education progresses in line with plans

Progress at Findel Education remains in line with management’s plans, which are based on a drive to increase online ordering through its integrated platform, using product sourced in the Far East. Online ordering has increased from c 20% at the start of the Online Value strategy in September 2017 to over 55% now. This is a significant improvement in the face of a continuing tough trading environment. Growth in the core UK customer base of 4% over the last year is evidence of increasing market share.

Reduced core net debt

Core net debt at the end of September 2018 was £81m about £9m lower than the same date last year. We do not regard that as significant in the context of the major pre-Christmas trading period lying ahead, and we make no change to our balance sheet forecast for the year. However, it is perhaps a promising indication in the context of consistent core net debt reductions over the last seven years.

Legacy settlements as provisioned

Findel is in the final stages of settling with customers in respect of mis-selling and poor value in financial insurance products from past periods as far back as 2005. The company has confirmed that the run-off is consistent with the existing provision, which was £8.6m at March 2018. This is in contrast to peer N Brown, which in its recent interim results increased its comparable provisions by £22.4m to a total of £33.0m. Similarly, Shop Direct provided £128.0m in its accounts for the year to June 2018, and had a total provision at year end of £100.4m.

No change to forecasts or valuation

We retain our forecasts, which are for pre-tax profit growth of 6.4% and EPS growth of 6.2% for the year to March 2019. That being the case, we see no necessity to revisit our valuation of 428p per share, which we established in our note Outstanding success with online-led strategy published on 8 June 2018. The valuation is a blend of a DCF valuation of 401p and a peer comparison indicating 455p.


Exhibit 1: Financial summary

£'000s

2017*

2018

2019e

2020e

Mar

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

457,030

478,959

508,789

538,585

Cost of Sales

(269,182)

(281,176)

(295,870)

(313,548)

Gross Profit

187,848

197,783

212,919

225,037

EBITDA

 

 

40,786

46,569

52,061

55,722

Operating Profit (before amort. and except.)

 

33,300

38,146

43,308

46,741

Intangible Amortisation

(1,959)

(1,996)

(2,416)

(2,383)

Operating profit pre exc post intang amortisation

31,341

36,150

40,891

44,358

Exceptionals

(82,152)

0

0

0

Other/share based payments

(191)

(199)

(1,000)

(1,000)

Operating Profit

(51,002)

35,951

39,891

43,358

Net Interest

(8,920)

(9,130)

(11,345)

(12,424)

Derviatives, other

556

(4,701)

0

0

Profit Before Tax (norm)

 

 

22,230

26,821

28,546

30,935

Profit Before Tax (FRS 3)

 

 

(59,366)

22,120

28,546

30,935

Tax

1,659

2,081

(5,766)

(6,249)

Profit After Tax (norm)

17,617

22,397

23,780

25,686

Profit After Tax (FRS 3)

(57,707)

24,201

22,780

24,686

Average Number of Shares Outstanding (m)

86.3

86.3

86.3

86.3

EPS - normalised (p)

 

 

20.4

25.9

27.5

29.8

EPS - normalised and fully diluted (p)

 

20.4

25.9

27.5

29.8

EPS - (IFRS) (p)

 

 

(66.8)

28.0

26.4

28.6

Dividend per share (p)

0.0

0.0

0.0

0.0

Gross Margin (%)

41.1

41.3

41.8

41.8

EBITDA Margin (%)

8.9

9.7

10.2

10.3

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

7.3

8.0

8.5

8.7

BALANCE SHEET

Fixed Assets

 

 

79,012

77,019

81,987

82,623

Intangible Assets

26,185

25,174

28,895

28,512

Tangible Assets

44,417

47,596

48,843

49,862

Investments

8,410

4,249

4,249

4,249

Current Assets

 

 

301,265

312,458

340,659

366,127

Stocks

57,108

53,091

56,941

69,026

Debtors

212,648

232,666

246,788

259,097

Cash

29,173

26,244

36,480

37,553

Other

2,336

457

451

451

Current Liabilities

 

 

(91,789)

(81,190)

(91,216)

(92,402)

Creditors

(91,244)

(80,618)

(90,698)

(91,884)

Short term borrowings

(545)

(572)

(518)

(518)

Long Term Liabilities

 

 

(271,785)

(268,606)

(272,215)

(272,637)

Long term borrowings

(253,603)

(258,001)

(264,192)

(264,192)

Other long term liabilities

(18,182)

(10,605)

(8,023)

(8,445)

Net Assets

 

 

16,703

39,681

59,215

83,711

CASH FLOW

Operating Cash Flow

 

 

12,281

11,439

33,210

31,746

Net Interest

(9,103)

(8,365)

(11,345)

(12,424)

Tax

148

581

(5,766)

(6,249)

Capex

(11,724)

(10,595)

(12,000)

(12,000)

Acquisitions/disposals

1,168

(450)

0

0

Financing

0

0

0

0

Dividends

0

0

0

0

Net Cash Flow

(7,230)

(7,390)

4,099

1,073

Opening net debt/(cash)

 

 

216,682

224,974

232,329

228,230

HP finance leases initiated

0

0

0

0

Other

(1,062)

35

0

0

Closing net debt/(cash)

 

 

224,974

232,329

228,230

227,157

Source: Findel, Edison Investment Research. Note:* 53 weeks. Restated.

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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Findel 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Findel 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues