The challenges on the Formula One track are apparent in the H118 report, and investment is being stepped up. Meanwhile, Williams Advanced Engineering (WAE) is delivering top-line growth, with contributions from a broad range of projects and customers. Overall, Williams believes it has the technical know-how and determination to succeed in its field.
Written by
Williams Grand Prix |
Determined to succeed
Industrials |
Scale research report - Update
8 October 2018 |
Share price graph
Share details
Business description
Bull
Bear
Analysts
Edison profile page |
||||||||||||||||||||||||||||
The challenges on the Formula One track are apparent in the H118 report, and investment is being stepped up. Meanwhile, Williams Advanced Engineering (WAE) is delivering top-line growth, with contributions from a broad range of projects and customers. Overall, Williams believes it has the technical know-how and determination to succeed in its field.
H118 results
H118 group revenues declined by 4% to £82.6m (H117 £85.9m). WAE revenues grew 8%; however, Formula One revenues were negatively affected by challenging operating conditions. The group generated an EBITDA loss of £2.7m (H117 £10.4m profit), reflecting the impact of a non-recurring one-off item in H117. The group reported an H118 EPS loss of 87.1p (H117 96.1p gain).
Road ahead
Williams is well placed to meet market challenges through world-class facilities and organisational strength. However, the requirement for additional investment in this year’s Formula One car is followed in swift succession with a focus on next year’s car. The team is currently 10th in the constructor standings, while there is some debate in the press about the influence of Lawrence Stroll on his son to move teams. However, off the track, the group is building industrial links, including the joint venture (JV) with Unipart (Hyperbat) to produce batteries for premium future hybrid and electric vehicles. This JV will operate from a high-tech facility based in the UK. Technology and capability are at the cornerstone of Williams’ group future performance.
Valuation: Level playing field preferred
We continue to believe the potential volatility of revenues and earnings and the nature of Williams’ business continue to represent a challenge to valuation from both a cash perspective and peer comparisons. The share price has been under increasing pressure throughout the year and we estimate it is trading on a clean underlying historic FY17 P/E multiple of 10.3x. The company’s prospects continue to be heavily dependent on racing performance. If WAE grows significantly with a more level Formula One playing field, a more consistent recurring income and cash flow may develop potentially benefiting valuation.
|
Historical financials
Source: Company reports |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
H118 results review
The half-year figures reflected the challenging environment the Formula One business faces this year. Group revenues fell 4% to £82.6m, with Formula One revenues showing a £4.8m (-7%) decline partially offset by a £1.8m (8%) improvement at WAE. Gross margin fell to 52.0% (H117 62.7%), reflecting a sharp increase in cost of sales despite the lower revenues.
Other operating income in the Formula One business fell sharply to £3.1m from £12.1m in H117, while remaining almost unchanged in WAE and the ‘other’ category. The decline reflected the absence of specific project work undertaken by the operation in the prior period. It largely explained the decline to a close to break-even EBITDA of £0.2m for the Formula One operation, down from £10.1m in H117. WAE saw EBITDA fall to £2.3m from £3.4m in H117 and there was an increased EBITDA loss of £5.1m (H117 EBITDA loss £3.1m) in the ‘other’ category. Overall the group generated an EBITDA loss of £2.7m compared to an EBITDA profit of £10.4m in the prior year.
The company does not disclose net debt, but cash and cash equivalents fell by £2.3m in H118 to £2.2m. Net assets fell to £38.6m from £46.6m at the start of the year reflecting the net loss in H118.
Exhibit 1: Williams Grand Prix Holdings income statement (£m)
12 months to December |
H116 |
H216 |
FY16 |
H117 |
H217 |
FY17 |
|
H118 |
H118/H117 % change |
Revenue |
|
|
|
|
|
|
|
|
|
Formula One |
51.4 |
65.3 |
116.7 |
65.5 |
60.1 |
125.6 |
|
60.7 |
-7 |
WAE |
20.6 |
16.4 |
36.9 |
19.9 |
19.7 |
39.5 |
|
21.5 |
8 |
Other |
8.1 |
5.7 |
13.8 |
0.5 |
0.6 |
1.1 |
|
0.5 |
-9 |
Group total |
80 |
87.4 |
167.4 |
85.9 |
80.4 |
166.2 |
|
82.6 |
-4 |
Gross profit |
51.1 |
58.3 |
109.4 |
53.9 |
45.9 |
99.8 |
|
43.0 |
-20 |
Gross margin |
63.8% |
66.7% |
65.3% |
62.7% |
57.1% |
60.0% |
|
52.0% |
-17 |
EBITDA |
|
|
|
|
|
|
|
|
|
Formula One |
4.1 |
8.3 |
12.4 |
10.1 |
5.9 |
16 |
|
0.2 |
-98 |
WAE |
3.5 |
0.7 |
4.2 |
3.4 |
1.6 |
5 |
|
2.3 |
-34 |
Other |
0.1 |
-1.2 |
-1.1 |
-3.1 |
-7.1 |
-10.2 |
|
-5.1 |
63 |
EBITDA |
7.7 |
7.8 |
15.5 |
10.4 |
0.4 |
10.8 |
|
-2.7 |
N/A |
Depreciation |
-1.7 |
-2.4 |
-4.1 |
-2.7 |
-2.8 |
-5.5 |
|
-2.8 |
4 |
Amortisation |
-0.1 |
-0.2 |
-0.3 |
-0.2 |
-0.3 |
-0.6 |
|
-0.5 |
149 |
EBIT |
5.9 |
5.2 |
11.2 |
7.4 |
-2.7 |
4.8 |
|
-6.0 |
N/A |
Share based payments |
-0.5 |
-0.1 |
-0.6 |
-0.4 |
-0.8 |
-1.2 |
|
-0.4 |
10 |
Movement in derivative financial instruments |
-2.7 |
-1 |
-3.7 |
2.6 |
1.4 |
4 |
|
-1.3 |
N/A |
Exceptional item |
|
|
|
|
7.3 |
7.3 |
|
|
|
Net interest |
-0.5 |
-0.4 |
-0.9 |
-0.4 |
-0.4 |
-0.8 |
|
-0.3 |
-14 |
Profit before tax (as reported) |
2.2 |
3.7 |
5.9 |
9.3 |
4.8 |
14.1 |
|
-8.4 |
N/A |
Net income (as reported) |
2.2 |
3.7 |
5.9 |
9.3 |
4.8 |
14.1 |
|
-8.4 |
N/A |
EPS (as reported) (p) |
22.1 |
37.4 |
59.5 |
94 |
47.7 |
141.8 |
|
-87.2 |
N/A |
Source: Company reports
Outlook
Although some progress may be apparent for WAE in H218 given comments about project timing in the H118, this is not likely to compensate for the decline in performance elsewhere. In Formula One the investment in the 2019 car has begun and with sponsorship tending to be first-half weighted, we do not expect a stronger second half. On the track the company has been facing a challenging year, and is likely to see financial ramifications moving into FY19.
WAE continues to be positioned to grow and develop new IP-driven activities such as the potential opportunities in electrical vehicles and battery technology. If these factors are combined with a more equitable future Formula One commercial proposition arising from the control of Liberty Media, then prospects for a more sustainable and potentially less volatile level of profitability and cash flow could become more of a reality.
|
||||||||
This paragraph mark is needed to maintain formatting, please leave this text for the editors.
Research: Consumer
The FY18 trading update confirms that momentum continues to drive Treatt’s business. Following the exceptional results posted throughout FY17, Treatt witnessed like-for-like revenue growth of 10% in H118, and 9% for FY18, suggesting some deceleration in H2. Growth remains broad-based, with all core categories contributing, and demonstrating that the business is well-placed to capitalise on current trends in the food and beverage space. Management’s outlook and expectations for the year remain unchanged, but we trim our forecasts to reflect gross margin headwinds.