Steady end to FY18, slower growth expected

WYG 6 April 2018 Update
Download PDF

WYG

Steady end to FY18, slower growth expected

FY18 year-end update

Industrial support services

6 April 2018

Price

35.0p

Market cap

£31m

€1.15/£

Net debt (£m) at end September 2017

10.1

Shares in issue

69.9m

Free float

86%

Code

WYG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.3)

(26.3)

(62.2)

Rel (local)

(11.0)

(21.0)

(61.8)

52-week high/low

104.5p

35.0p

Business description

WYG is a multidiscipline, international project management and management service consultancy, which reports divisionally as Consultancy Services (76% of FY17 revenue: development, creation and management of assets) and International Development (24%: supporting less developed regions and fragile/conflict-affected states).

Next events

FY18 results

5 June

Analyst

Toby Thorrington

+44 (0)20 3077 5721

WYG is a research client of Edison Investment Research Limited

A more settled trading period saw WYG end FY18 in line with market estimates. Management continues to work on improving organisational efficiency and structure including exiting unprofitable business. We have lowered the rate of expected progress beyond the current year – in line with guidance – pending more detailed order book and revenue run rate information with FY18 results, which are scheduled for 5 June.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

133.5

7.0

10.6

1.5

3.6

4.3

03/17

151.8

8.2

11.9

1.8

2.9

5.1

03/18e

154.0

2.8

3.8

1.8

9.3

5.1

03/19e

159.0

3.5

4.2

1.9

8.3

5.3

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

FY18 ends with stable trading patterns

In Consultancy Services, UK activity is split broadly evenly between private and public sector clients and conditions are understood to be fairly stable in both, including a normal seasonal uptick in public sector work. Elsewhere, Polish office trading has stabilised following action taken earlier in the year with better workflow mix. International Development has seen no noteworthy variations in its major project funding programmes compared to H1 trends. The end February group order book of £162m is slightly below the end H117 level (£170m) but above the £145m reported at the end of FY17. We understand that the y-o-y closing positions are up in both divisions. Year-end net debt is stated as being in line with market estimates; our model projects this to be £7m including a good H2 working capital performance.

Lower rate of growth flagged beyond FY18

Regarding non-trading items, there is an implied c £5m of exceptional costs to be booked in H2, the majority of which relates to the closure of an office in the North-West of the UK (business acquired in 2015). We believe that around half of these costs are cash related, some of which will flow out against onerous lease payments over time. Looking into FY19, management has flagged similar revenue and slightly better profit compared to FY18. In our view, this is likely to be related to greater focus on profitable business lines in conjunction with a more efficient office network, possibly leading to a dampening of overall group revenue growth. This is now reflected in our revised estimates in which we have reduced FY19 and FY20 EBIT and PBT by £1m. More details on underlying trends will emerge with FY18 results.

Valuation: Share price at lower end of trading range

WYG’s share price has been weighed down by newsflow on trading performance in the last six months and now sits at the lower end of its 12-month trading range. The closing year EV/EBITDA is now 5.9x, declining to 4.8x on our reduced FY20 estimates. Over the same time, the P/Es are 9.3x and 7.2x respectively (noting an underlying tax charge of 0% rising to 12.5%) in our model. Earnings cover our modestly rising DPS estimates over two times in all three estimate years with a trailing dividend yield of 5.1%.

Exhibit 1: Financial summary

£'ms

2013

2014

2015

2016

2017

2018e

2019e

2020e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

Revenue

 

 

125.7

126.9

130.5

133.5

151.8

154.0

159.0

163.0

EBITDA

 

 

3.3

6.4

7.2

9.0

10.6

5.2

6.0

6.7

Operating Profit (before GW and except.)

1.5

4.8

5.4

7.2

8.6

3.6

4.2

4.7

Net Interest

 

 

(0.8)

(0.6)

(0.1)

(0.2)

(0.6)

(0.8)

(0.7)

(0.6)

JV / Associates

 

 

0.0

0.0

0.4

(0.0)

0.2

0.0

0.0

0.0

Intangible Amortisation

 

 

(1.0)

(1.2)

(1.3)

(1.5)

(1.9)

(1.5)

(1.5)

(1.5)

Other

 

 

(2.5)

(3.7)

(2.9)

(1.5)

(0.7)

0.4

(0.8)

(0.8)

Exceptionals

 

 

(0.6)

2.4

0.0

(1.8)

(4.0)

(7.4)

0.0

0.0

Profit Before Tax (norm)

 

 

0.7

4.3

5.7

7.0

8.2

2.8

3.5

4.1

Profit Before Tax (FRS 3)

 

 

(3.3)

1.8

1.4

2.2

1.6

(5.7)

1.3

1.9

Tax

 

 

(0.1)

0.3

0.5

0.6

0.8

0.0

(0.4)

(0.5)

Minorities

 

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit After Tax (norm)

 

 

0.7

4.5

6.2

7.6

9.0

2.8

3.2

3.6

Profit After Tax (FRS 3)

 

 

(3.4)

2.1

1.9

2.8

2.4

(5.7)

0.9

1.3

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

64.5

64.6

65.8

70.6

71.1

73.3

72.7

72.7

EPS - normalised fully diluted (p)

 

 

0.8

6.4

8.6

10.6

11.9

3.8

4.2

4.8

EPS - FRS 3 (p)

 

 

(5.2)

3.2

2.9

4.0

3.3

(7.7)

1.2

1.8

Dividend per share (p)

 

 

0.0

0.5

1.0

1.5

1.8

1.8

1.9

1.9

 

 

 

 

 

 

 

 

 

 

 

EBITDA Margin (%)

 

 

2.6

5.1

5.5

6.8

7.0

3.4

3.8

4.1

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

1.2

3.8

4.1

5.4

5.6

2.3

2.6

2.9

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

18.6

19.8

22.0

32.3

30.5

27.8

28.2

27.3

Intangible Assets

 

 

16.3

17.6

18.7

27.5

25.5

21.8

20.3

18.8

Tangible Assets

 

 

2.4

2.2

2.3

3.2

3.2

4.2

6.0

6.7

Investments

 

 

0.0

0.0

0.9

1.6

1.8

1.8

1.8

1.8

Current Assets

 

 

66.8

60.0

54.6

62.5

67.2

66.2

67.3

67.6

Stocks

 

 

20.2

21.6

21.1

30.4

30.0

30.5

30.8

30.5

Debtors

 

 

23.0

18.5

18.5

19.7

26.5

25.5

26.3

27.0

Cash

 

 

19.597

15.9

12.3

8.2

6.5

5.9

5.9

5.9

Current Liabilities

 

 

(45.7)

(42.9)

(40.8)

(50.7)

(53.8)

(57.2)

(60.0)

(59.6)

Creditors

 

 

(44.8)

(42.3)

(40.8)

(47.6)

(49.8)

(49.2)

(49.3)

(50.3)

Short term borrowings

 

 

(0.953)

(0.7)

0.0

(3.1)

(4.0)

(8.0)

(10.7)

(9.2)

Long Term Liabilities

 

 

(23.3)

(16.9)

(13.2)

(15.8)

(12.3)

(12.5)

(11.5)

(11.5)

Long term borrowings

 

 

0.0

0.0

0.0

(5.0)

(5.0)

(5.0)

(5.0)

(5.0)

Other long term liabilities

 

 

(23.3)

(16.9)

(13.2)

(10.8)

(7.3)

(7.5)

(6.5)

(6.5)

Net Assets

 

 

16.4

20.1

22.5

28.3

31.6

24.3

23.9

23.9

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

(2.6)

(0.1)

2.4

(1.0)

3.4

1.1

3.2

6.7

Net Interest

 

 

(0.8)

(0.5)

(0.1)

(0.2)

(0.6)

(0.8)

(0.7)

(0.6)

Tax

 

 

(0.2)

(0.0)

(0.3)

(0.3)

(0.9)

(0.5)

(0.4)

(0.5)

Capex

 

 

(1.3)

(1.4)

(1.7)

(2.5)

(1.9)

(2.7)

(3.7)

(2.7)

Acquisitions/disposals

 

 

(0.8)

(1.4)

(1.6)

(7.9)

(2.3)

(0.5)

0.0

0.0

Financing

 

 

(0.0)

0.0

(0.2)

0.0

0.0

(0.0)

0.0

0.0

Dividends

 

 

0.0

0.0

(0.5)

(0.8)

(0.7)

(1.3)

(1.3)

(1.4)

Net Cash Flow

 

 

(5.6)

(3.3)

(2.0)

(12.6)

(3.0)

(4.7)

(2.7)

1.5

Opening net debt/(cash)

 

 

(23.0)

(18.6)

(15.2)

(12.3)

(0.2)

2.5

7.0

9.8

HP finance leases initiated

 

 

(0.0)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

1.3

(0.2)

(0.9)

0.5

0.3

0.1

(0.0)

(0.0)

Closing net debt/(cash)

 

 

(18.6)

(15.2)

(12.3)

(0.2)

2.5

7.0

9.8

8.3

Source: Company, 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 Pty 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 WYG 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 Investments 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 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

10017, New York

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 Pty 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 WYG 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 Investments 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 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

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues