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WYG — A good year, but not as good as anticipated

WYG — A good year, but not as good as anticipated

A slower end to FY17 for UK operations has lowered market guidance to c £9m EBIT for the year, c 12% below our previous estimate (but still c 23% above FY16) and we have adjusted our model accordingly. By the FY17 results announcement (on 6 June), we will have more visibility on run rates and order intake, and will naturally review estimates for FY18 and beyond at that time. Forward P/Es are now on single-digit multiples.

Analyst avatar placeholder

Written by

WYG

A good year, but not as good as anticipated

FY17 year-end update

Industrial support services

24 March 2017

Price

97.50p

Market cap

£68m

£/€1.15

Net debt (£m) at end September 2016

4.9

Shares in issue

69.9m

Free float

86%

Code

WYG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(23.5)

(22.9)

(27.8)

Rel (local)

(24.4)

(26.1)

(38.5)

52-week high/low

142.5p

97.0p

Business description

WYG is a multidiscipline, international project management and management service consultancy with over half of revenues generated in the UK and the remainder in a spread of international markets, reported as Europe, Africa and Asia (EAA) and Middle East, North Africa (MENA).

Next events

FY17 results

6 June 2017

Capital markets event

H217 (tbc)

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

WYG is a research client of Edison Investment Research Limited

A slower end to FY17 for UK operations has lowered market guidance to c £9m EBIT for the year, c 12% below our previous estimate (but still c 23% above FY16) and we have adjusted our model accordingly. By the FY17 results announcement (on 6 June), we will have more visibility on run rates and order intake, and will naturally review estimates for FY18 and beyond at that time. Forward P/Es are now on single-digit multiples.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

130.5

5.7

8.6

1.0

11.3

1.0

03/16

133.5

7.0

10.6

1.5

9.2

1.5

03/17e

152.0

8.5

11.5

1.8

8.5

1.8

03/18e

166.0

11.0

13.6

2.0

7.2

2.1

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

Year-end update points to slower UK order intake

UK trading has seen a quieter than anticipated end to FY17; H217 financials will be in line with or slightly ahead of the prior year, but this represents a shortfall against earlier expectations. The UK typically has a shorter order book with a significant Q4 trading period. Management cites some programme and contract award deferrals but no stand-out sectors, contracts or customer types behind this. We should note that FY17 group PBT will still show a good y-o-y uplift driven largely by progress in most overseas operations. We had expected a return to a funds-neutral position at the year-end (versus £4.9m net debt at the H1 stage). The indicated net debt of c £6m is therefore likely to reflect a combination of lower expected profit, a less favourable working capital position (probably appearing in WiP and debtors) and some cash exceptionals (see below). We have also factored in £3m cash consideration for already announced acquisitions, of which c £2.3m relates to H2.

Reduced estimates, group changes

Following the year-end update, we have reduced our expected group revenue and EBIT (and PBT) by a net £3m and £1m (or c 2% and c 10%) respectively for FY17. In the mix, the UK adjustments are slightly higher than this, partly offset by better overseas trading. WYG is in the process of updating its business strategy and changing the group structure. Costs of c £1.7m are anticipated for this; together with some associated accelerated contract adjustments in Poland gives a total c £2.5m exceptional charge for FY17. Most of the related cash outflow will fall into FY17. At this stage, we have made no changes to our out year estimates; some of the deferred project work may come in during Q117 and the impact on run rates and order intake will be better judged with FY17 results in June.

Valuation: Rating compression follows update

A c 24% share price markdown following the year end update – well in excess of the FY17 estimate revision – resulted in rating compression. A reiteration of management confidence in the FY18 outlook backed by order backlog in June would help towards restoring dented investor sentiment.

Exhibit 1: Financial summary

£'ms

2013

2014

2015

2016

2017e

2018e

2019e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

Revenue

 

 

125.7

126.9

130.5

133.5

152.0

166.0

178.5

EBITDA

 

 

3.3

6.4

7.2

9.0

11.2

13.7

14.5

Operating Profit (before GW and except.)

1.5

4.8

5.4

7.2

8.9

11.3

12.0

Net Interest

 

 

(0.8)

(0.6)

(0.1)

(0.2)

(0.5)

(0.4)

(0.3)

JV / Associates

 

 

0.0

0.0

0.4

0.0

0.1

0.0

0.0

Intangible Amortisation

 

 

(1.0)

(1.2)

(1.3)

(1.5)

(2.0)

(2.0)

(2.0)

Other

 

 

(2.5)

(3.7)

(2.9)

(1.5)

(1.0)

(1.0)

(1.0)

Exceptionals

 

 

(0.6)

2.4

0.0

(1.8)

(2.5)

0.0

0.0

Profit Before Tax (norm)

 

 

0.7

4.3

5.7

7.0

8.5

11.0

11.7

Profit Before Tax (FRS 3)

 

 

(3.3)

1.8

1.4

2.2

3.0

8.0

8.7

Tax

 

 

(0.1)

0.3

0.5

0.6

0.0

(0.9)

(1.0)

Minorities

 

 

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

8.5

10.1

10.7

Profit After Tax (FRS 3)

 

 

(3.4)

2.1

1.9

2.8

3.0

7.1

7.7

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

64.5

64.6

65.8

70.6

68.4

68.4

68.4

EPS - normalised fully diluted (p)

 

 

0.8

6.4

8.6

10.6

11.5

13.6

14.4

EPS - FRS 3 (p)

 

 

(5.2)

3.2

2.9

4.0

4.4

10.4

11.2

Dividend per share (p)

 

 

0.0

0.5

1.0

1.5

1.8

2.0

2.2

 

 

 

 

 

 

 

 

 

 

EBITDA Margin (%)

 

 

2.6

5.1

5.5

6.8

7.3

8.3

8.1

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

1.2

3.8

4.1

5.4

5.9

6.8

6.7

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

18.6

19.8

22.0

32.3

34.4

33.4

31.2

Intangible Assets

 

 

16.3

17.6

18.7

27.5

28.7

27.1

25.0

Tangible Assets

 

 

2.4

2.2

2.3

3.2

3.9

4.5

4.4

Investments

 

 

0.0

0.0

0.9

1.6

1.8

1.8

1.8

Current Assets

 

 

66.8

60.0

54.6

62.5

65.8

64.4

74.7

Stocks

 

 

20.2

21.6

21.1

30.4

32.7

31.4

32.9

Debtors

 

 

23.0

18.5

18.5

19.7

22.9

26.0

28.0

Cash

 

 

19.597

15.9

12.3

8.2

6.7

3.5

10.3

Current Liabilities

 

 

(45.7)

(42.9)

(40.8)

(50.7)

(56.7)

(50.7)

(52.6)

Creditors

 

 

(44.8)

(42.3)

(40.8)

(47.6)

(49.2)

(50.7)

(52.6)

Short term borrowings

 

 

(0.953)

(0.7)

0.0

(3.1)

(7.5)

0.0

0.0

Long Term Liabilities

 

 

(23.3)

(16.9)

(13.2)

(15.8)

(11.9)

(9.7)

(9.5)

Long term borrowings

 

 

0.0

0.0

0.0

(5.0)

(5.0)

(5.0)

(5.0)

Other long term liabilities

 

 

(23.3)

(16.9)

(13.2)

(10.8)

(6.9)

(4.7)

(4.5)

Net Assets

 

 

16.4

20.1

22.5

28.3

31.6

37.4

43.7

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

(2.6)

(0.1)

2.4

(1.0)

2.1

10.2

11.8

Net Interest

 

 

(0.8)

(0.5)

(0.1)

(0.2)

(0.5)

(0.4)

(0.3)

Tax

 

 

(0.2)

(0.0)

(0.3)

(0.3)

(0.9)

(0.9)

(0.9)

Capex

 

 

(1.3)

(1.4)

(1.7)

(2.5)

(2.9)

(2.9)

(2.4)

Acquisitions/disposals

 

 

(0.8)

(1.4)

(1.6)

(7.9)

(3.0)

(0.5)

0.0

Financing

 

 

(0.0)

0.0

(0.2)

0.0

0.0

0.0

0.0

Dividends

 

 

0.0

0.0

(0.5)

(0.8)

(1.1)

(1.3)

(1.4)

Net Cash Flow

 

 

(5.6)

(3.3)

(2.0)

(12.6)

(6.3)

4.3

6.8

Opening net debt/(cash)

 

 

(23.0)

(18.6)

(15.2)

(12.3)

(0.2)

5.8

1.5

HP finance leases initiated

 

 

(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

0.0

0.0

Closing net debt/(cash)

 

 

(18.6)

(15.2)

(12.3)

(0.2)

5.8

1.5

(5.3)

Source: Company accounts, 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Healthcare

Transgene — Combination trials start, FY16 results

Transgene has announced the initiation of two clinical trials of its main assets in combination with immune checkpoint inhibitors (ICIs). A Phase I trial of oncolytic virus Pexa-Vec in combination with Yervoy in solid tumours has started. Additionally, a Phase II study of the therapeutic vaccine TG4010 with Opdivo in second-line advanced lung cancer has started at UC Davis in collaboration with Bristol-Myers Squibb; initial results from both trials are expected later this year. Cash and equivalents at end 2016 amount to €56.2m. Our updated valuation is €204m or €3.6/share.

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