Findel’s (FDL’s) attractive online-led value retail proposition is continuing to deliver impressive results. With the mandatory offer by Sports Direct having lapsed, FDL has issued a post-close update confirming a strong trading performance in Q4 in both Studio and Education and expectations for FY19 PBT to slightly exceed market consensus of £27–28m. We upgrade our PBT forecasts by 6% for FY19 and 1% for FY20. Given recent share price weakness, our unchanged valuation of 348p is twice the current share price.
Written by
Findel |
A strong finish to the year |
Trading update |
Retail |
9 May 2019 |
Share price performance
Business description
Next events
Analysts
Findel is a research client of Edison Investment Research Limited |
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Findel’s (FDL’s) attractive online-led value retail proposition is continuing to deliver impressive results. With the mandatory offer by Sports Direct having lapsed, FDL has issued a post-close update confirming a strong trading performance in Q4 in both Studio and Education and expectations for FY19 PBT to slightly exceed market consensus of £27–28m. We upgrade our PBT forecasts by 6% for FY19 and 1% for FY20. Given recent share price weakness, our unchanged valuation of 348p is twice the current share price.
Year end |
Revenue (£m) |
EBITDA |
PBT* |
EPS* |
P/E |
EV/EBITDA |
03/17** |
457.0 |
40.8 |
22.2 |
20.4 |
8.5 |
5.5 |
03/18 |
479.0 |
46.6 |
26.8 |
25.9 |
6.7 |
4.8 |
03/19e |
507.0 |
51.3 |
28.5 |
27.7 |
6.2 |
4.4 |
03/20e |
540.4 |
54.1 |
29.5 |
28.5 |
6.1 |
4.1 |
Note: *PBT and EPS are normalised, excl intangible amortisation, exceptional items and share-based payments. **53 weeks, restated. Historical results are not restated for IFRS9.
Post-close: Beating current market expectations
Studio continued to trade strongly in the fourth fiscal quarter. Categories that performed particularly well included garden ranges, boosted by good weather in early February, and homewares. Similarly, education enjoyed a solid final quarter with an acceleration in customer recruitment and ongoing improvement in online ordering levels. Management expects FY19 pre-tax profits to slightly exceed the current market consensus of £27–28m (we estimated £27m before the update). Core net debt at the end of March was c £57m, marginally below our forecast of £58.5m. This represents a c £17m reduction in core net debt year-on-year.
Forecasts: 6% FY19e earnings upgrade
We upgrade our underlying PBT forecast by 5.6% for FY19e, mainly reflecting a strong sales performance and continued margin improvement in Studio across the year. We further upgrade our FY20e PBT forecast by 1.0%, representing year-on-year earnings growth of 3.5%.
Valuation: 100% upside given share price weakness
Since the start of November the share price has fallen 45%, from an undisturbed price of 250p (before the sale of stakes representing 24.1% of FDL’s issued share capital by Toscafund Asset Management and City Financial Investment Company, for reasons unrelated to their views on the company). This decline appears unjustified given the strength of trading and ongoing reduction in core net debt. At this stage we make no change to our blended valuation of 348p, which is now twice the current share price. In our view, minimal take-up (representing only 0.01% of FDL’s issued share capital) of the recent unsolicited mandatory offer by Sports Direct at 161p highlights ongoing support for the strategy and future growth prospects.
Exhibit 1: Financial summary
£'000s |
2017 |
2018 |
2019e |
2020e |
||
Mar |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
457,030 |
478,959 |
507,043 |
540,384 |
Cost of Sales |
(269,182) |
(280,230) |
(300,607) |
(320,110) |
||
Gross Profit |
187,848 |
198,729 |
206,436 |
220,275 |
||
EBITDA |
|
|
40,786 |
46,569 |
51,305 |
54,123 |
Operating Profit (before amort. and except.) |
|
33,300 |
38,146 |
42,443 |
45,162 |
|
Intangible Amortisation |
(1,959) |
(1,996) |
(2,552) |
(2,387) |
||
Operating profit pre exc post intang amortisation |
31,341 |
36,150 |
39,891 |
42,775 |
||
Exceptionals |
(82,152) |
0 |
(4,500) |
0 |
||
Other/share based payments |
(191) |
(199) |
(1,000) |
(1,000) |
||
Operating Profit |
(51,002) |
35,951 |
34,391 |
41,775 |
||
Net Interest |
(8,920) |
(9,130) |
(10,345) |
(12,244) |
||
Derviatives, other |
556 |
(4,701) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
22,230 |
26,821 |
28,546 |
29,531 |
Profit Before Tax (FRS 3) |
|
|
(59,366) |
22,120 |
24,046 |
29,531 |
Tax |
1,659 |
2,081 |
(4,737) |
(5,906) |
||
Profit After Tax (norm) |
17,617 |
22,397 |
23,909 |
24,625 |
||
Profit After Tax (FRS 3) |
(57,707) |
24,201 |
19,309 |
23,625 |
||
Average Number of Shares Outstanding (m) |
86.3 |
86.3 |
86.3 |
86.3 |
||
EPS - normalised (p) |
|
|
20.4 |
25.9 |
27.7 |
28.5 |
EPS - normalised and fully diluted (p) |
|
20.4 |
25.9 |
27.7 |
28.5 |
|
EPS - (IFRS) (p) |
|
|
(66.8) |
28.0 |
22.4 |
27.4 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
41.1 |
41.5 |
40.7 |
40.8 |
||
EBITDA Margin (%) |
8.9 |
9.7 |
10.1 |
10.0 |
||
Operating Margin (before GW and except.) (%) |
7.3 |
8.0 |
8.4 |
8.4 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
79,012 |
81,687 |
84,288 |
84,940 |
Intangible Assets |
26,185 |
25,175 |
28,947 |
28,560 |
||
Tangible Assets |
44,417 |
47,596 |
46,489 |
47,528 |
||
Investments |
8,410 |
8,916 |
8,852 |
8,852 |
||
Current Assets |
|
|
301,265 |
311,918 |
340,669 |
366,563 |
Stocks |
57,108 |
54,180 |
57,017 |
70,405 |
||
Debtors |
212,648 |
231,037 |
246,996 |
260,584 |
||
Cash |
29,173 |
26,244 |
36,333 |
35,252 |
||
Other |
2,336 |
457 |
322 |
322 |
||
Current Liabilities |
|
|
(91,789) |
(81,190) |
(84,914) |
(91,822) |
Creditors |
(91,244) |
(80,618) |
(84,396) |
(91,304) |
||
Short term borrowings |
(545) |
(572) |
(518) |
(518) |
||
Long Term Liabilities |
|
|
(271,785) |
(273,170) |
(280,672) |
(278,172) |
Long term borrowings |
(253,603) |
(258,001) |
(264,192) |
(264,192) |
||
Other long term liabilities |
(18,182) |
(15,169) |
(16,480) |
(13,980) |
||
Net Assets |
|
|
16,703 |
39,245 |
59,371 |
81,509 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
12,281 |
11,439 |
28,691 |
29,249 |
Net Interest |
(9,103) |
(8,365) |
(10,716) |
(12,424) |
||
Tax |
148 |
581 |
(1,383) |
(5,906) |
||
Capex |
(11,724) |
(10,595) |
(12,357) |
(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) |
4,235 |
(1,081) |
||
Opening net debt/(cash) |
|
|
216,682 |
224,974 |
232,329 |
228,377 |
HP finance leases initiated |
0 |
0 |
(283) |
0 |
||
Other |
(1,062) |
35 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
224,974 |
232,329 |
228,377 |
229,458 |
Source: Company data, Edison Investment Research. Note: Historical results are not restated for IFRS 9.
|
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Research: Financials
In particularly difficult market conditions, Numis’s franchise strength and maintenance of the compensation ratio softened the impact of lower investment banking and equities revenue. Earnings per share were still down by two-thirds compared with H118 but, looking ahead, a return to a more favourable environment should allow Numis to deliver attractive returns on equity once more (historical five-year average c 20%).