Park Group — Further progress in the key second half

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Research: Financials

Park Group — Further progress in the key second half

Park has given a trading update covering the financial year that ended on 31 March 2017 ahead of the preliminary results announcement scheduled for 13 June 2017. Second half trading has maintained the momentum that was reported with the interims, delivering further good progress and an expected full year result in line with market expectations. Early indications for the coming year are also positive, with order levels ahead of their position at the same time last year, and management expresses confidence for a strong year ahead.

Martyn King

Written by

Martyn King

Director, Financials

Financials

Park Group

Further progress in the key second half

Q4 trading update

Financial services

7 April 2017

Price

81.75p

Market cap

£151m

Net cash (£m) at 30 September 2016 (excludes £169.4m of cash held in trust in respect of customer liabilities).

29.3

Shares in issue

184.4m

Free float

98.2%

Code

PKG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.2

5.1

12.8

Rel (local)

2.5

3.2

(4.2)

52-week high/low

87.0p

60.8p

Business description

Park Group is a specialised financial services business. It is one of the UK’s leading multi-retailer gift voucher and prepaid gift card businesses. Park facilitates corporate reward and incentive schemes, has the UK’s leading Christmas savings business and operates an online gift voucher shop.

Next events

Preliminary results

13 June 2016

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Park Group is a research client of Edison Investment Research Limited

Park has given a trading update covering the financial year that ended on 31 March 2017 ahead of the preliminary results announcement scheduled for 13 June 2017. Second half trading has maintained the momentum that was reported with the interims, delivering further good progress and an expected full year result in line with market expectations. Early indications for the coming year are also positive, with order levels ahead of their position at the same time last year, and management expresses confidence for a strong year ahead.

Year end

Billings**
(£m)

PBT
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

372.9

10.9

4.6

2.40

17.8

2.9

03/16

385.0

11.9

5.2

2.75

15.7

3.4

03/17e

408.7

12.4

5.3

2.90

15.4

3.5

03/18e

440.4

13.4

5.7

3.05

14.3

3.7

Note: PBT and EPS are on a statutory basis. *Fully diluted. Adjustment made to FY17 dilution assumption. **Billings is a non-statutory measure of sales defined as the face value of voucher sales and the amount of value loaded on to prepaid cards.

Key H2 trading delivering expectations

Second half trading, which includes the important Christmas trading period, is highly significant for Park, accounting for the majority of revenues and all of the profits. In Consumer, the completed order book (Christmas 2016) was ahead more than 4%, in line with the interim position. The Corporate business has successfully converted a strong interim order pipeline into increased H2 sales. The statement highlights progress in ‘Evolve’ digital corporate rewards and incentivisation platform. Management expects to meet consensus earnings expectations and we note that the consensus PBT estimate of £12.6m is a little ahead of our own, which we will review with the preliminary results in June.

Product innovation continuing to drive sales

The Evolve platform and the introduction of Mastercard-licensed products are recent examples of the product innovation that are the fruits of ongoing investment in digital technology and e-commerce. Constant innovation has supported steady growth in Christmas savings and has allowed the Corporate division, based around incentive and rewards services, to grow strongly into what is a very large target market (£5bn pa as defined by the UK Gift Card & Voucher Association). Digitalisation and a small EU presence in the Republic of Ireland (RoI) are opening up new territories and new markets.

Valuation: Unchanged

Our fair value is unchanged at 88p. It is based on our absolute DCF valuation of 90p per share and a P/E relative comparison with businesses that share similar characteristics (86p per share). Park’s earnings would benefit from an increase in interest rates.

Detail and background

Ahead of the preliminary results, which are scheduled for release on 13 June 2017, Park has issued a trading statement for the financial year that ended on 31 March 2017. The business has traded well in H2 and is expected to meet consensus expectations for the year. The Bloomberg consensus PBT estimate is £12.55m, a little ahead of our unchanged £12.35m estimate, which may indicate that we are being a little conservative. Given the brief nature of the trading update, we have made no change to our PBT and net income estimates at this stage (only a small adjustment to the assumed dilutive number of shares) and will review these in detail in June.

The interim results released in August indicated a number of positive trends, but it is in the second half of the year that c 80% of sales are recorded and all of the profits are made. Both the Corporate and Consumer divisions advanced sales in H1 and the seasonal pre-tax loss reduced to £760k from £1,404k, while cash balances advanced further. However, the H1 Corporate sales advance of 4% was lower than we had expected, but management indicated that the order pipeline was pointing to a stronger H2.

The trading update reports that completed orders for the Consumer business were over 4% ahead of last year, in line with the Christmas 2016 order book reported at the interim stage. The Corporate business appears to have delivered on the interim-stage pipeline and saw increased traction in H2, which management ascribes, in part, to progress with the ‘Evolve’ digital corporate rewards and incentivisation platform. Evolve, which was launched in June 2016, is an online branded platform that allows customer organisations to cost-effectively create and control their own web or smart device-based reward programmes in real time. The number of corporate customers that have used the system has reached 162, an increase from 65 at the time of the interims.

Cash balances (including customer funds held in trust), on which Park earns interest, seasonally peaked at a record £217m during H117 (FY16: £206m). Shareholder cash (non-segregated) was £32.6m and the trading update indicates that Park’s overall financial position has remained extremely sound with cash balances ahead of last year.

Management reports that the early indications for the coming year from both the Consumer and Corporate businesses are positive, with order books again ahead of their position at the same time last year. The Consumer order book for Christmas 2017 will have been substantially built by this stage, giving management strong visibility for the year ahead.

Exhibit 1: Financial summary

Year end 31 March

£'000s

2014

2015

2016

2017e

2018e

PROFIT & LOSS

IFRS

IFRS

IFRS

IFRS

IFRS

Billings

336,040

372,887

385,031

408,690

440,402

Revenue

 

 

269,563

293,329

302,545

310,569

323,149

Cost of sales

(245,928)

(265,966)

(274,060)

(280,469)

(290,705)

Gross margin

23,635

27,363

28,485

30,100

32,444

Distribution costs

(2,521)

(2,761)

(2,909)

(2,919)

(3,070)

Administrative expenses

(11,421)

(13,057)

(13,150)

(14,070)

(15,338)

EBITDA

 

 

9,693

11,545

12,426

13,112

14,036

Depreciation & amortisation

(1,260)

(1,308)

(1,309)

(1,312)

(1,237)

Amortisation of acquired intangible, goodwill impairment, & impairment of investment property

(390)

(314)

(86)

(70)

(70)

Share-based payments

(215)

(235)

(631)

(888)

(890)

Exceptional operating income

0

0

0

0

0

Operating profit

7,828

9,688

10,400

10,841

11,839

Operating Profit (before amort. and except.)

 

8,433

10,237

11,117

11,799

12,799

Net Interest

1,576

1,245

1,457

1,510

1,600

Profit Before Tax (norm)

 

 

10,009

11,482

12,574

13,309

14,399

Profit before tax (IFRS)

 

 

9,404

10,933

11,857

12,351

13,439

Tax

(2,124)

(2,434)

(2,169)

(2,470)

(2,688)

Profit after tax (norm)

 

 

7,877

8,926

10,274

10,647

11,519

Profit after tax (IFRS)

 

 

7,280

8,499

9,688

9,881

10,751

Discontinued operations

0

0

0

0

0

Profit after tax (IFRS)

 

 

7,280

8,499

9,688

9,881

10,751

Average Number of Shares Outstanding (m)

178.8

184.7

187.2

187.2

187.2

Basic EPS - IFRS (p)

 

 

4.16

4.66

5.28

5.38

5.85

Fully diluted EPS - IFRS (p)

 

 

4.14

4.60

5.18

5.28

5.74

EPS - normalised fully diluted (p)

 

 

4.33

4.83

5.49

5.69

6.15

Dividend per share (p)

2.30

2.40

2.75

2.90

3.05

Gross margin on billings (%)

7.0

7.3

7.4

7.4

7.4

EBITDA margin as % of billings

2.9

3.1

3.2

3.2

3.2

Operating margin (before GW and except) as % billings

2.5

2.7

2.9

2.9

2.9

BALANCE SHEET

Fixed assets

 

 

13,744

13,932

13,749

13,087

13,007

Intangible assets

5,110

4,488

4,356

3,977

3,910

Tangible assets

8,626

8,143

8,003

7,743

7,731

Retirement benefit obligation

0

1,293

1,390

1,367

1,367

Other

8

8

0

0

0

Current assets

 

 

84,484

106,998

119,365

127,362

141,561

Debtors

12,128

14,937

11,411

11,813

12,710

Cash held in trust

57,514

65,728

75,219

79,449

85,345

Cash available to group

14,842

26,333

32,735

36,100

43,506

Current liabilities

 

 

(100,848)

(118,190)

(124,808)

(126,985)

(135,491)

Creditors

(63,614)

(75,004)

(80,041)

(79,834)

(86,029)

Provisions

(37,234)

(43,186)

(44,767)

(47,151)

(49,462)

Short-term borrowings

0

0

0

0

0

Long-term liabilities

 

 

(1,515)

(2,907)

(1,881)

(1,362)

(663)

Long-term borrowings

0

0

0

0

0

Deferred tax

(294)

(273)

(181)

(181)

(181)

Retirement benefit obligation

(1,221)

(2,634)

(1,700)

(1,181)

(482)

Net assets

 

 

(4,135)

(167)

6,425

12,101

18,414

Minorities

311

0

0

0

0

Shareholders' equity

 

 

(3,824)

(167)

6,425

12,101

18,414

CASH FLOW

Operating Cash Flow

4,094

14,106

12,184

14,583

15,050

Net interest

1,948

1,176

1,339

1,310

1,600

Tax

(2,079)

(2,132)

(2,490)

(3,741)

(2,688)

Capex

(977)

(597)

(1,126)

(743)

(1,228)

Acquisitions/disposals

52

41

52

0

0

Financing

4,700

0

0

0

0

Dividends

(3,704)

(4,198)

(4,380)

(4,123)

(5,327)

Other

(1)

0

(4)

0

0

Net cash flow

4,033

8,396

5,575

7,286

7,406

Opening net (debt)/cash

10,810

14,843

23,239

28,814

36,100

Closing net (debt)/cash

 

 

14,843

23,239

28,814

36,100

43,506

Source: Park Group, 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 Park Group 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 Park Group 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

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