Findel |
Strong finish - Forecast upgrade |
Pre-close statement |
Retail |
18 April 2018 |
Share price performance
Business description
Next events
Analysts
Findel is a research client of Edison Investment Research Limited |
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Findel indicates that it will finish FY18 at the top end of current market expectations. This suggests that both the online strategy and the turnaround strategy at Findel Education are on course. We upgrade FY18 profit forecasts to the new guidance level and retain our 312p valuation which, at an FY18e P/E of 10.5x, is modest for a company with an online presence of 72% and 13% PBT CAGR 2017-19e.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/16 |
410.6 |
24.8 |
23.0 |
0.0 |
11.6 |
N/A |
03/17 |
457.0 |
22.2 |
20.4 |
0.0 |
13.1 |
N/A |
03/18e |
477.4 |
26.5 |
25.4 |
0.0 |
10.5 |
N/A |
03/19e |
505.6 |
28.5 |
27.3 |
0.0 |
9.8 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Results to be at the top end of expected range
Findel signals that its FY18 results will be at the top end of current market expectations, a pre-tax range of £26.0-26.5m. Three factors are cited: strong growth in customer numbers and sales at Express Gifts, particularly ahead of Christmas; stronger collections and recoveries by the credit business; and good progress on the turnaround at Findel Education, with core UK brands seeing sales decline narrow to just 2% in H2 after a decline of 10% in H1.
Strong cash performance
Core FY18 net debt was c £74m, down by c £7m from the previous year. This extends the progress reported at interim, when core net debt reduced by £4m year-on-year.
Small forecast upgrade
We make no significant changes to our forecasts other than increasing our FY18 profit forecast to the new PBT guidance level of £26.5m, which is a 1.8% upgrade.
Valuation: We retain our 312p
Although Findel’s share price has gradually firmed over the first quarter of 2018, it is still only priced at FY18e P/E of 10.5x, which is undemanding for a company where we forecast 13% pre-tax CAGR for the two years to FY19. Despite our slight upgrade to our FY18e forecast, there has been no material change to the outlook, and we retain our existing valuation of 312p per share. This would value the company at a P/E of 12.3x and EV/EBITDA of 7.3x (based on core net debt).
Full-year results to be at top end of expected range
Findel signals that its FY18 results will be at the upper end of market expectations, a pre-tax range of £26.0-26.5m. Three factors are cited:
■
Strong growth both in customer numbers and sales at Express Gifts, particularly ahead of Christmas.
■
Stronger collections and recoveries by the credit business.
■
Good progress on the turnaround at Findel Education, with core UK brands seeing sales decline narrow to just 2% y-o-y in H2 after a decline of 10% y-o-y in H1. Around half of sales are now coming through online channels, up sharply from c 18% at the start of the year.
Express Gifts: Pre-Christmas boost and better collections
The strong growth in customer numbers and sales reflects the 11% year-to-date product revenue growth reported in January, which was driven by the earlier timing of the pre-Christmas marketing campaign, with increased use of TV and social media. Product sales in the fourth quarter have been correspondingly quieter, but management still expects Express operating profit to be c 20% ahead for the year, which would suggest a figure in the region of £36m.
In part, this was also the result of better collections and recoveries from the consumer credit operation. The relevance of this statement is that it reflects the full-year application of the company’s new bad debt provisioning model. This makes more granular predictions of account behaviour. This in turn drove seasonally lower provision at interim, which the company said would reverse by year end. If it is the case that the credit business contributed to the overall improvement in operating profit for the year as a whole, it indicates the increase in credit revenues has not been at the expense of quality, as it has been subject to the more granular analysis of the new model.
Findel Education: Realigned offer narrows the decline gap
Findel Education is making good progress on its turnaround strategy, designed to restore its competitiveness and reverse recent sales declines. The key features of the strategy are increasing the level of online ordering, aligning pricing for value; sourcing product direct from the Far East; and reducing costs through operational simplification. Now the core brands are seeing sales decline narrow to just 2% y-o-y in H2 after a decline of 10% y-o-y in H1, a significant improvement. Around half of sales are now coming through online channels, up sharply from c 18% at the start of the year.
Margin details are not disclosed; however, the sales progress may have been achieved at gross margin cost following significant price reductions in September 2017. Against this, the division is benefiting from savings on warehouse consolidation worth £2.0-2.5m in FY18 as well as c £1m of additional savings expected in the year.
Balance sheet: Core net debt reduced
Core net debt (ie bank borrowings excluding securitisation loans, less cash) ended the year at £74m, down by £7m from the previous year. This continues the downward trend seen over recent years, and extends the progress reported at interim, when core net debt reduced by £4m y-o-y. Outflows from the legacy customer refund programme remain on track.
Forecasts: Small upgrade
We make no significant changes to our forecasts other than increasing our FY18 profit forecasts to the new guidance level.
Exhibit 1: Changes to estimates
|
EPS (p) |
PBT (£m) |
EBITDA (£m) |
||||||
|
Old |
New |
% chg |
Old |
New |
% chg |
Old |
New |
% chg |
03/17 |
20.4 |
20.4 |
- |
22.2 |
22.2 |
- |
40.8 |
40.8 |
- |
03/18e |
25.0 |
25.4 |
1.7 |
26.0 |
26.5 |
1.8 |
46.7 |
47.2 |
1.0 |
03/19e |
27.3 |
27.3 |
- |
28.5 |
28.5 |
- |
51.9 |
51.9 |
- |
Source: Edison Investment Research
Valuation: We retain our 312p
Although Findel’s share price has gradually firmed over the first quarter of 2018, it is still only priced at FY18e P/E of 10.5x. Although we have slightly upgraded our FY18e PBT forecast, there has been no material change to the outlook, and we retain our existing valuation of 312p per share. This would value the company at a FY18e P/E of 12.3x and FY18e EV/EBITDA of 7.3x (based on core net debt), which is undemanding for a company which has 72% online presence and where we forecast 13% pre-tax CAGR for the two years to FY19.
Exhibit 2: Financial summary
£'000s |
2016 |
2017 |
2018e |
2019e |
||
March year-end |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
410,601 |
457,030 |
477,380 |
505,581 |
Cost of Sales |
(214,621) |
(269,385) |
(277,853) |
(292,926) |
||
Gross Profit |
195,980 |
187,645 |
199,527 |
212,654 |
||
EBITDA |
|
|
41,758 |
40,785 |
47,221 |
51,904 |
Operating Profit (before amort. and except.) |
|
37,264 |
33,299 |
39,545 |
44,397 |
|
Intangible Amortisation |
(2,348) |
(1,959) |
(2,031) |
(2,495) |
||
Operating profit pre exc post intang amortisation |
34,916 |
31,340 |
37,513 |
41,902 |
||
Exceptionals |
(25,458) |
(82,152) |
0 |
0 |
||
Other/share based payments |
(239) |
(191) |
(1,000) |
(1,000) |
||
Operating Profit |
9,219 |
(51,003) |
36,513 |
40,902 |
||
Net Interest |
(9,901) |
(8,920) |
(10,028) |
(12,371) |
||
Financial exceptional items |
(998) |
556 |
(3,817) |
0 |
||
Profit Before Tax (norm) |
|
|
24,776 |
22,229 |
26,485 |
28,531 |
Profit Before Tax (FRS 3) |
|
|
(1,680) |
(59,367) |
22,668 |
28,531 |
Tax |
91 |
1,659 |
(4,755) |
(5,991) |
||
Profit After Tax (norm) |
19,785 |
17,616 |
21,961 |
23,539 |
||
Profit After Tax (FRS 3) |
(10,196) |
(57,708) |
17,913 |
22,539 |
||
Average Number of Shares Outstanding (m) |
86.1 |
86.3 |
86.3 |
86.3 |
||
EPS - normalised (p) |
|
|
23.0 |
20.4 |
25.4 |
27.3 |
EPS - normalised and fully diluted (p) |
|
20.3 |
20.4 |
25.4 |
27.3 |
|
EPS - (IFRS) (p) |
|
|
(11.8) |
(66.8) |
20.8 |
26.1 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
47.7 |
41.1 |
41.8 |
42.1 |
||
EBITDA Margin (%) |
10.2 |
8.9 |
9.9 |
10.3 |
||
Operating Margin (before GW and except.) (%) |
9.1 |
7.3 |
8.3 |
8.8 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
92,927 |
79,012 |
78,462 |
77,460 |
Intangible Assets |
47,322 |
26,185 |
29,311 |
31,816 |
||
Tangible Assets |
41,423 |
44,417 |
40,741 |
37,234 |
||
Investments |
4,182 |
8,410 |
8,410 |
8,410 |
||
Current Assets |
|
|
321,279 |
301,265 |
322,531 |
337,273 |
Stocks |
53,472 |
57,108 |
68,840 |
71,819 |
||
Debtors |
229,848 |
212,648 |
221,851 |
236,189 |
||
Cash |
34,405 |
29,173 |
30,091 |
27,518 |
||
Other |
3,554 |
2,336 |
1,748 |
1,748 |
||
Current Liabilities |
|
|
(76,191) |
(91,789) |
(89,045) |
(93,246) |
Creditors |
(75,673) |
(91,244) |
(88,527) |
(92,728) |
||
Short term borrowings |
(518) |
(545) |
(518) |
(518) |
||
Long Term Liabilities |
|
|
(259,140) |
(271,785) |
(277,206) |
(272,215) |
Long term borrowings |
(250,569) |
(253,603) |
(264,192) |
(264,192) |
||
Other long term liabilities |
(8,571) |
(18,182) |
(13,014) |
(8,023) |
||
Net Assets |
|
|
78,875 |
16,703 |
34,742 |
49,273 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
8,889 |
12,280 |
9,339 |
27,790 |
Net Interest |
(9,549) |
(9,103) |
(10,028) |
(12,371) |
||
Tax |
(2,494) |
148 |
1,045 |
(5,991) |
||
Capex |
(15,940) |
(11,724) |
(10,000) |
(12,000) |
||
Acquisitions/disposals |
11,115 |
1,168 |
0 |
0 |
||
Financing |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(7,979) |
(7,231) |
(9,644) |
(2,573) |
||
Opening net debt/(cash) |
|
|
206,551 |
216,682 |
224,975 |
234,619 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
(2,152) |
(1,062) |
(0) |
(0) |
||
Closing net debt/(cash)* |
|
|
216,682 |
224,975 |
234,619 |
237,192 |
Source: Company data, Edison Investment Research. Note: *Total net debt, including securitisation loans and finance leases, less cash.
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