Strong finish - Forecast upgrade

Findel 18 April 2018 Update
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Findel

Strong finish - Forecast upgrade

Pre-close statement

Retail

18 April 2018

Price

267p

Market cap

£230m

Core net debt (£m) at 31 March 2018

74

Shares in issue

86.3m

Free float

69%

Code

FDL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

15.6

35.2

33.2

Rel (local)

14.8

43.9

34.1

52-week high/low

267.0p

150.2p

Business description

Findel comprises market-leading businesses in the UK online value retailing and education supplies markets. Findel’s objective is to develop sustainable growth in a marketplace for value-conscious customers who are rapidly moving their purchases online.

Next events

Final results

6 June 2018

Analysts

Paul Hickman

+44 (0)20 3681 2501

Neil Shah

+44 (0)20 3077 5715

Findel is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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.

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 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 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 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

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