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Research: Financials
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.
Park Group |
Further progress in the key second half |
Q4 trading update |
Financial services |
7 April 2017 |
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Park Group is a research client of Edison Investment Research Limited |
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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** |
PBT |
EPS* |
DPS |
P/E |
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
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