Creston |
Strong cash performance |
Year-end trading update |
Media |
18 April 2016 |
Share price performance
Business description
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Analysts
Creston is a research client of Edison Investment Research Limited |
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Creston’s brief year-end trading update indicates that FY16 revenue and earnings figures will be in line with indications given in January and our expectations. However, the cash performance is significantly better than we had anticipated at over £1m. FY17 should benefit from more focused recent attention to overhead management after the less consistent trading in H216, with no trading improvement currently factored in. The valuation remains at a significant discount to other smaller marketing agencies and the shares carry a premium yield on a well-covered dividend.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/14 |
74.9 |
9.6 |
11.8 |
3.9 |
8.9 |
3.7 |
03/15 |
76.9 |
10.0 |
13.1 |
4.2 |
8.0 |
4.0 |
03/16e |
83.0 |
9.5 |
11.3 |
4.2 |
9.3 |
4.0 |
03/17e |
85.0 |
10.5 |
12.4 |
4.4 |
8.5 |
4.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Unchanged forecasts
At the time of the January Q3 update, we brought our estimates back to reflect the trading environment, with client budgets and programmes being trimmed and/or delayed. For the new financial year just beginning, the impact should be offset by good momentum on new business wins, together with actions taken internally to realign the cost base within particular agencies. Creston has also indicated that there will be exceptional impairment charges on the carrying value of goodwill taken with the full figures in June. This new statement suggests that the client-side background is less volatile than it was in January, which in turn implies that unchanged forecasts should be looking like a ‘base case’.
Better cash performance
Our model had implied that there would be a small net debt position of £0.4m at the end of March, so for Creston to be pointing to a net cash figure of over £1m suggests a very strong working capital performance, given that there has been no change to earnings numbers.
Valuation: Significant discount
The combination of a lower share price and the better cash position means that Creston’s EV has reduced since our last note in January, increasing the discount to the agency sector on which the shares trade. Its valuation now stands at 5.6x CY15 EV/EBITDA, a 34% discount to the marketing services sector; a 32% discount a year further out. DBAY Advisors, represented on the board since February by Iain Ferguson (ex-Havas), has taken advantage of the lower price and increased its shareholding to 28.0%.
Exhibit 1: Financial summary
2014 |
2015 |
2016e |
2017e |
|||
31-March |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Sales |
101,850 |
100,135 |
105,976 |
108,780 |
||
Cost of Sales |
(26,972) |
(23,257) |
(22,976) |
(23,780) |
||
Revenue |
|
|
74,878 |
76,878 |
83,000 |
85,000 |
EBITDA |
|
|
11,423 |
11,672 |
11,272 |
12,202 |
Operating Profit (before amort. and except.) |
|
9,766 |
10,181 |
9,760 |
10,752 |
|
Intangible Amortisation |
(60) |
0 |
(612) |
(612) |
||
Goodwill impairment, restructuring |
(2,353) |
0 |
(2,140) |
0 |
||
Acquisition, start-up & restructuring costs less movement in fair value of deferred consideration |
0 |
(384) |
0 |
0 |
||
Operating Profit |
7,353 |
9,797 |
7,008 |
10,140 |
||
Net Interest |
(149) |
(174) |
(260) |
(252) |
||
Profit Before Tax (norm) |
|
|
9,617 |
10,007 |
9,500 |
10,500 |
Tax |
(2,410) |
(2,232) |
(2,222) |
(2,415) |
||
Profit After Tax (norm) |
7,648 |
7,792 |
7,278 |
8,085 |
||
Profit After Tax (FRS 3) |
4,794 |
7,392 |
4,526 |
7,473 |
||
Average Number of Shares Outstanding (m) |
60.0 |
58.7 |
58.7 |
58.7 |
||
EPS - normalised fully diluted (p) |
|
|
11.8 |
13.1 |
11.3 |
12.4 |
EPS - (IFRS) (p) |
|
|
7.8 |
12.4 |
6.6 |
11.4 |
Dividend per share (p) |
3.9 |
4.2 |
4.2 |
4.4 |
||
Gross Margin (%) |
73.5 |
76.8 |
78.3 |
78.1 |
||
EBITDA Margin (%) |
15.3 |
15.2 |
13.6 |
14.4 |
||
Operating Margin (before GW and except.) (%) |
13.0 |
13.2 |
11.8 |
12.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
110,591 |
111,763 |
115,507 |
114,333 |
Intangible Assets |
104,985 |
106,637 |
110,411 |
109,799 |
||
Tangible Assets |
5,606 |
5,126 |
5,096 |
4,534 |
||
Investments |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
37,305 |
37,508 |
33,404 |
37,625 |
Stocks |
905 |
1,001 |
1,092 |
1,179 |
||
Debtors |
28,948 |
28,195 |
30,745 |
33,217 |
||
Cash |
7,452 |
8,312 |
1,568 |
3,228 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(29,666) |
(28,271) |
(32,088) |
(30,441) |
Creditors |
(29,666) |
(28,271) |
(30,088) |
(29,191) |
||
Short term borrowings |
0 |
0 |
(2,000) |
(1,250) |
||
Long Term Liabilities |
|
|
(5,672) |
(3,727) |
(4,150) |
(4,150) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(5,672) |
(3,727) |
(4,150) |
(4,150) |
||
Net Assets |
|
|
112,558 |
117,273 |
112,673 |
117,366 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
7,517 |
8,647 |
8,500 |
8,900 |
Net Interest |
(112) |
(190) |
(260) |
(252) |
||
Tax |
(2,647) |
(2,003) |
(2,217) |
(2,270) |
||
Capex |
(1,665) |
(961) |
(950) |
(1,100) |
||
Acquisitions/disposals |
0 |
0 |
(11,323) |
(334) |
||
Financing |
(4,711) |
(1,752) |
0 |
0 |
||
Dividends |
(2,381) |
(2,491) |
(2,494) |
(2,534) |
||
Net Cash Flow |
(3,999) |
1,250 |
(8,744) |
2,410 |
||
Opening net debt/(cash) |
|
|
(11,198) |
(7,452) |
(8,312) |
432 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
253 |
(390) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(7,452) |
(8,312) |
432 |
(1,978) |
Source: Company accounts, Edison Investment Research
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