Appreciate Group — FY21 meets consensus as recovery continues

Appreciate Group (LN: APP)

Last close As at 20/05/2024

27.80

0.00 (0.00%)

Market capitalisation

52m

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Research: Financials

Appreciate Group — FY21 meets consensus as recovery continues

Ahead of results for the year to 31 March 2021 (FY21) due in June, a trading update for Appreciate Group (APP) indicates underlying results in line with market expectations, supported by the continuing positive trend in billings and despite an increase in profit deferral. In this note we provide an update on our forecasts and a detailed review of our fair valuation (60p per share), which looks through the near-term suppression of earnings by the pandemic and the cash flow effects of business mix changes.

Martyn King

Written by

Martyn King

Director, Financials

Financials

Appreciate Group

FY21 meets consensus as recovery continues

Trading update

Financial services

5 May 2021

Price

40p

Market cap

£74m

Net cash (£m) at 31 March 2021

32.9

Shares in issue

186.3m

Free float

100%

Code

APP

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.7

5.9

1.6

Rel (local)

11.6

(0.8)

(18.4)

52-week high/low

46p

24p

Business description

Appreciate Group is a specialised financial services business and is the UK’s leading provider of multi-retailer redemption products to the corporate and consumer markets. Consumers can access these products directly through its market-leading Christmas savings offering. Corporate customers use these products to supply a range of incentive and reward products, often tailor made.

Next events

FY21 results

29 June 2021

Analyst

Martyn King

+44 (0)20 3077 5745

Appreciate Group is a research client of Edison Investment Research Limited

Ahead of results for the year to 31 March 2021 (FY21) due in June, a trading update for Appreciate Group (APP) indicates underlying results in line with market expectations, supported by the continuing positive trend in billings and despite an increase in profit deferral. In this note we provide an update on our forecasts and a detailed review of our fair valuation (60p per share), which looks through the near-term suppression of earnings by the pandemic and the cash flow effects of business mix changes.

Year end

Billings*
(£m)

Revenue
(£m)

Adjusted PBT** (£m)

Adjusted EPS*** (p)

DPS
(p)

P/E
(x)

Yield
(%)

03/19

426.9

110.4

12.5

5.4

3.20

7.4

8.0

03/20

419.9

112.7

11.4

4.9

0.00

8.1

N/A

03/21e

406.5

93.9

4.5

2.3

1.20

17.6

3.0

03/22e

400.6

103.4

7.2

3.1

1.50

12.8

3.8

Note: *Billings is a non-statutory measure of sales defined as the face value of voucher sales and the net amount of value loaded on prepaid cards/digital products. **PBT is adjusted for non-recurring & exceptional items. ***Adjusted EPS is fully diluted.

Meeting consensus despite earnings deferral

APP expects FY21 adjusted PBT in line with expectations. This excludes c £3.0m of non-recurring restructuring costs relating to the accelerated repositioning of the business during the pandemic but includes a similar amount of profit deferral due to slower customer redemptions. We have increased our below consensus (£4.2m) FY21 adjusted PBT forecast to £4.5m, with smaller increases in future years including stronger corporate billings sufficient to offset a c 11% decline in the current year Christmas savings order book. Underlying billings increased 5.7% year-on-year in H221 following a 28.8% H121 decline and group billings, including lower Christmas savings billings and the one-off, low-margin free school meals initiative, were £406.5m (FY20: £419.9m). Better margin digital product sales continue to strengthen (+286% y-o-y) with the transition away from paper accelerated by the pandemic (-46% y-o-y).

Positioning for growth despite the pandemic

APP has continued to progress its strategic business plan, aimed at building a more robust and scalable business model capable of capitalising on growth opportunities in the large and fragmented market in which the group operates. The progress made to date, enhancing operating systems and processes, and putting a greater focus on digital products and services, mitigated the pandemic’s effects in FY21, delivered growth in H221, and better positions the group to exploit existing industry trends and deliver sustainable growth. Having disposed of, or withdrawn from, FMI, hamper production, third-party contract packaging and the small operation in the Republic of Ireland, APP is now fully focused on growing its more profitable core business of own branded multi-retailer product.

Valuation: Recovery and growth not discounted

Our modified DCF valuation is unchanged at 60p/share. It implies a calendar year 2021 P/E of c 21x, reasonable in a ‘peer group’ context and in view of the expected post-pandemic recovery and APP’s growth ambitions.

Return to H2 profitability

APP’s business is highly seasonal with most billings generated in the second half of the year, including the important Christmas trading period. With costs spread more evenly across the year, H1 is typically loss-making with all profits generated in the second half of the year. There has been a trend towards the softening of the seasonality, driven by the growth in the corporate business (slightly less seasonal than Christmas savings) and faster despatch of Christmas orders (in part made possible by the growth in card and digital product) but this was reversed in FY21 by the pandemic. The H121 loss was magnified by the sharp fall in billings at the beginning of the financial year and, although H221 adjusted PBT remained below H220, the swing from loss to profit in H221 was actually larger than in the previous year.

Exhibit 1: H1/H2 total billings trend*

Exhibit 2: H1/H2 adjusted PBT trend*

Source: Appreciate Group data. Note: *Total group including free school meals initiative in FY21.

Source: Appreciate Group data. Note: *Adjusted PBT excludes exceptional and non-recurring items as shown in Exhibit 7.

Exhibit 1: H1/H2 total billings trend*

Source: Appreciate Group data. Note: *Total group including free school meals initiative in FY21.

Exhibit 2: H1/H2 adjusted PBT trend*

Source: Appreciate Group data. Note: *Adjusted PBT excludes exceptional and non-recurring items as shown in Exhibit 7.

Billings continued to recover despite the second lockdown

Underlying billings1 fell sharply following the introduction of the first lockdown (down 64% y-o-y in April 2020) but have steadily recovered since. Q3 is the busiest quarter of the year (74% of total annual underlying billings in FY21 and 69% in FY20) and was ahead by c 13%, with December 2020 representing APP’s busiest ever month, with corporate customers seeking ways to reward employees as an alternative to Christmas parties. The post-Christmas Q4 period is typically the quietest quarter of the year (although it was stronger than Q1 during FY21 due to the pandemic); it showed a small (c £4m) year-on-year decline in underlying billings but coming after the strong Q3, and amid the second lockdown, we think the H2 trend versus H1 is a better guide to what we believe is an ongoing recovery in billings, with H221 growth of 5.7% y-o-y.

  To provide a clearer picture of trading performance, underlying billings does not include Christmas savings where billings are driven by the timing of order despatch, primarily in the second half of the year.

Exhibit 3: Steady recovery in underlying billings*

Year ending 31 March

Q1

Q2

Q3

Q4

H1

H2

Corporate and HSV billings (£m)

FY21

21.0

36.9

96.3

33.3

57.9

129.6

FY20

41.5

39.8

85.1

37.5

81.3

122.6

Year-on-year change

-49.4%

-7.3%

13.2%

-11.2%

-28.8%

5.7%

Source: Appreciate Group data. Note: Underlying billings includes corporate billings and Highstreetvouchers.com (HSV) and excludes the free school meal initiative.

Total H221 group billings of £307.7m (Exhibit 1) include the H221 impact of the free school initiative (c £12.7m following c £10.3m in H121) and excluding this would have been c £5m lower than H220. This primarily reflects the previously reported c 8% decline in Christmas orders for FY21. As we discuss in the financial section of this note, the recovery in underlying billings in FY21 was much stronger than we had expected and provides a stronger base for further growth in FY22. As a result, our FY22 group billings forecast is increased despite APP indicating a c 11% further decline in the Christmas savings order book in the current year (Christmas 2021). This is disappointing as Christmas savings represents a significant share of group billings (we estimate c 46% in FY21) and performance has clearly been held back by the impact of COVID-19 restrictions on face-to-face agent activity. The restricted options for redeeming products during the lockdown may also have had a negative impact on the order book, which has normally been put in place by end-March. APP says that a number of initiatives are underway to accelerate the recruitment of Christmas savings customers, particularly those who come directly to the group, and to improve agent incentivisation.

Repositioning accelerated during the pandemic

Decisive action was taken to adapt to the new environment, with a further acceleration in digitalisation, in step with market developments, mitigating the worst impacts of the pandemic and leaving the group in a better position to capitalise on market recovery and exploit growth opportunities.

Digital billings increased by 286% during FY21 (from £17.7m to £68.4m) with the trend accelerating during the year. Market trends have also supported further progress in the move away from paper vouchers, with FY21 billings down 46%.

Having disposed of, or withdrawn from, FMI, hamper production, third-party contract packaging and the small operation in the Republic of Ireland, APP is now fully focused on growing its more profitable core business of own branded multi-retailer product.

The next stage of the new enterprise resource planning system, the cornerstone of APP’s plans to build a robust and scalable business platform, remains on track to be delivered in the summer of 2021, with the following phase to be delivered in the second half of the year.

Financials

APP expects FY21 adjusted PBT to be within the range of expectations before the statement (£4.1–4.8m) and ahead of our £4.2m forecast, now increased to £4.5m. The billings recovery in FY21, driven by the corporate business, was stronger than we had forecast and, despite the lockdown measures continuing to delay redemptions (‘spending by customers in stores’), the trigger for recognising revenues and profits, the underlying profit indicated by management is also above our forecast. Profits deferred (until redemption) increased to £3m (FY20: c £0.4m). The easing of lockdown restrictions should support the emergence of this profitability, which provides a strong underpinning to future profitability. Although at a more normal rate, some of the profits on the further growth that we expect will likely be deferred into future time periods.

Underlying profits exclude c £3m of non-recurring restructuring costs, including the wind down of hamper production and the Republic of Ireland business. APP expects c £0.6m of this to be classified as exceptional. Our FY21 adjusted PBT forecasts include adjustment for the following items as reported in H121 and our estimate for H221:

Exhibit 4: Edison adjustments to PBT

£m

H121

H221

FY21

Redundancy costs

(0.6)

0.0

(0.6)

Hamper business trading losses

(0.6)

(1.4)

(2.0)

Impairment of obsolete stock

(0.4)

0.0

(0.4)

Gain on disposal

0.0

0.0

0.0

Total exceptional & non-recurring items

(1.6)

(1.4)

(3.0)

Source: Appreciate group data, Edison Investment Research

For FY22, our billings forecast for the consumer business is reduced by c 7% (to c £180m) but for corporate it is increased by c 10% (to c £220m). Our forecasts for FY22 and FY23 adjusted PBT are similarly slightly increased.

Our 1.2p FY21 DPS forecast (H121: 0.4p) is covered by forecast adjusted PBT but not by forecast statutory PBT, including exceptional/non-recurring items, of c £1.5m. Having suspended payment of DPS for FY20 due to the pandemic, APP has previously spoken of its ambition to return to a more normal pattern of dividend payments, although it has not yet reviewed the final H221 DPS. We continue to expect significant DPS growth through FY22 and FY23.

Exhibit 5: Forecast changes

Billings (£m)

Revenues (£m)

Adjusted PBT (£m)*

Adjusted EPS (p)

DPS (p)

New

Old

Change

New

Old

Change

New

Old

Change

New

Old

Change

New

Old

Change

03/21e

406.5

360.9

12.6%

93.9

93.5

0.5%

4.5

4.2

8.7%

2.3

1.9

18.0%

1.20

1.20

0.0%

03/22e

400.6

392.3

2.1%

103.4

101.0

2.4%

7.2

7.1

0.7%

3.1

3.1

0.7%

1.50

1.50

0.0%

03/23e

425.0

417.2

1.9%

108.0

107.4

0.5%

9.4

9.4

0.3%

4.1

4.1

0.3%

2.10

2.10

0.0%

Source: Edison Investment Research. Note:*Adjusted PBT excludes exceptional and non-recurring items.

Although the planned reduction in billings of paper vouchers accelerated in FY21 due to the pandemic, free cash flow increased due to redemptions falling at a faster pace. At £32.9m, end-FY21 net cash (excluding lease liabilities) was above the end-FY20 level (£29.6m), including a £6.4m benefit from an increased voucher provision balance (see below). As redemption patterns normalise, we expect the voucher provision balance to decline and in the following sections we explain this in more detail, as well as its impact on our valuation of APP shares.

Vouchers distort underlying cash flow

APP has historically been a highly cash-generative business, operating for many years with negative net equity and no debt while funding the growth of the business through ‘negative working capital’. With the strategic acceleration into digital products, this is changing, better positioning APP in the faster, more profitable segments of the market, and better aligning it with customer trends and preferences. Assuming normal redemption patterns, we forecast this product shift to reduce near-term operational cash flow as the balance sheet adjusts – not because card/digital products consume cash to any significant extent but because the lower-margin voucher products are cash generative so long as sales are rising and cash negative when sales are falling. We think that this transformation is much more likely to maximise the creation of shareholder value over time and that to properly assess this potential value creation it is important to understand the near-term distortions to underlying cash flow.

Voucher run-off depresses near-term reported cash flow

Historically strong group cash flow significantly reflected the ‘float’ of cash available to the company resulting from previously growing sales of multi-retailer vouchers and the timing difference between the billing of those vouchers and their redemption (‘spending in the shops’) by customers. Vouchers are an ‘unregulated product’ (unlike card and digital products regulated by the Bank of England as emoney) and although the customer cash is segregated, it transfers to the company, becoming ‘free cash’, at the point of billing (when the vouchers are despatched). While some of this cash, representing the profit margin, remains with the company, most of it is ultimately paid to APP’s retail partners in lieu of the redeemed vouchers. However, this process may take many months and meanwhile the cash is available to APP. There is no distortion of profits as the cash that is expected to be paid away is matched by a provision in the balance sheet. The FY21 increase in the voucher provision reflects the additional cash that is expected to be paid out once redemption patterns normalise. At the group level, our forecast free cash balance declines in FY22 and FY23 because we expect the voucher provision balance to reduce. We also believe that it is important to fully understand the distorting, negative effect of the shift from paper vouchers to digital/card product, so that an appropriate value may be placed on the underlying strength of cash flows. Our DCF valuation discussed in the following section is based on underlying cash flows and fully excludes the cash, and the cash flow, represented by the voucher provision balance and changes in it.

Valuation

Based on the return to more normal trading conditions reflected in our near-term forecasts and longer-term growth prospects, enhanced by the strategic refocusing on card and digital products, the drivers of industry growth, we continue to see significant value in APP shares. Although the share price discount to our fair value of 60p has narrowed in recent months, it is still more than 30%. Evidence of continued improvement in trading, as the economy begins to open and is enhanced by the business transformation programme, should act as a catalyst to closing the gap further.

DCF valuation supported by ‘peer’ comparison

A satisfactory direct valuation comparison of APP with quoted competitors is not possible. There are no direct quoted comparators for the Christmas savings business, and competitor employee benefits and service providers are either private companies or relatively small parts of larger groups, complicating any attempt at a relative valuation approach. In incentive and rewards products, Sodexo and Edenred are both much larger and more international, and the overlap between APP and Sodexo is limited (Sodexo Benefits and Rewards Services is only a minor part of Sodexo Group). We nevertheless include these in our quoted comparator group along with a selection of prepaid card and payments service providers (Euronet Worldwide, FleetCor Technologies, Green Dot Corp and EML Payments).

Our DCF value is unchanged at 60p with the effect of slightly lower FY21 reported earnings (including the impact of one-off items) and underlying cash flow (ie excluding movement in the voucher provision balance) offset by the unwinding of the discount rate. The DCF valuation of 60p implies a ‘target’ P/E multiple of c 21x for both calendar year 2020 and 2021 (CY20 and CY21) adjusted EPS and c 15x CY22. Although relatively high due to near-term earnings pressures, we believe these multiples are reasonable in the context of the comparator stocks, despite the comparatively low market capitalisation and implied lower liquidity.

Exhibit 6: Peer comparison

 

Share price (local)

Market cap (£m)

P/E (x)
CY20

P/E (x)
CY21

EV/EBITDA (x) CY20

EV/EBITDA (x) CY21

Dividend yield (%)

Incentive

 

 

 

 

 

 

 

Edenred

46

9,853

42.4

36.7

21.8

19.6

1.7

Sodexo

84

10,584

46.9

30.6

16.2

13.6

0.0

Incentive average

 

 

44.7

33.7

19.0

16.6

0.8

FleetCor Technologies

293

17,584

26.4

23.4

21.8

18.5

N/A

Green Dot Corp

45

1,760

22.4

21.1

18.4

17.1

N/A

EML Payments

6

1,130

66.8

51.4

26.4

17.3

N/A

Euronet Worldwide

142

5,393

57.3

N/A

28.2

16.8

N/A

Prepaid card and payment services average

 

 

43.3

32.0

23.7

17.4

N/A

Total group average

 

 

43.7

32.6

22.2

17.2

0.8

Appreciate Group

40

75

13.7

13.9

10.2

9.2

3.0

Source: Refinitiv, Edison Investment Research estimates for Appreciate Group. Note: Earnings data on a calendar year basis, using adjusted EPS. Appreciate’s enterprise value (EV) excludes voucher provision balance from cash. Prices at 5 May 2021.

DCF value unchanged at 60p

Our modified DCF valuation differs from a standard DCF in that we include the interest earned on segregated customer cash balances (but not on group cash balances), recognising this is an integral part of the returns the company generates (although the contribution is greatly reduced at current low interest rates). The customer cash itself is excluded from the overall valuation and we also exclude the voucher provisions balance, as this will eventually flow out in settlement of vouchers that have been issued but not yet redeemed. Our key assumptions have been held constant for an extended period, including an assumed 10% discount rate and 10x terminal multiple. Beyond the forecast period (to end-FY23), we use a two-stage growth assumption to allow for the potential medium-term benefits of the strategic business plan investment. For the first two years beyond the forecast period (years four and five), we assume 10% growth in underlying free cash flows, followed by a reversion to a long-term growth rate of 5% up until year 10. We continue to assume an eventual ‘normalisation’ in interest rates and assume a stepped increase in market deposit rates to 1.5% in FY24 and 3% from FY25 and, as noted above, we deduct upfront from the DCF valuation the amount of voucher provisions (an estimated £36.6m at end-FY21) on the basis that the matching cash is only temporarily available to the group, albeit on a revolving basis. As a result of this methodology, the DCF value is not enhanced by the current voucher provision balance, nor does the expected future decline in the voucher provision balance have any impact.

Exhibit 7: Financial summary

Year end 31 March (£m)

2015

2016

2017

2018

2019

2020

2021e

2022e

2023e

PROFIT & LOSS

Consumer billings

196.8

208.4

216.8

232.6

232.1

222.2

199.4

179.7

182.1

Corporate billings

176.1

176.7

187.7

180.2

194.8

197.7

207.1

220.9

243.0

Total Billings

372.9

385.0

404.5

412.8

426.9

419.9

406.5

400.6

425.0

Revenue

85.8

100.6

119.6

111.1

110.4

112.7

93.9

103.4

108.0

Cost of sales

(59.2)

(72.0)

(89.9)

(79.6)

(79.1)

(79.8)

(68.6)

(74.5)

(76.6)

Gross profit

26.6

28.5

29.7

31.4

31.3

32.9

25.4

29.0

31.3

Gross margin as % billings

7.1%

7.4%

7.3%

7.6%

7.3%

7.8%

6.2%

7.2%

7.4%

Distribution costs

(2.8)

(2.9)

(2.9)

(3.0)

(2.9)

(2.8)

(2.1)

(1.8)

(1.7)

Administrative expenses excluding depreciation & amortisation

(14.9)

(15.2)

(14.9)

(15.7)

(16.0)

(18.4)

(18.9)

(18.0)

(18.2)

Add back non-recurring items within EBITDA

0.0

0.0

0.0

0.0

0.0

0.0

2.0

0.0

0.0

Adjusted EBITDA

8.9

10.4

11.8

12.7

12.3

11.7

6.4

9.2

11.5

Depreciation & amortisation

0.0

0.0

(1.4)

(1.4)

(1.4)

(1.7)

(2.1)

(2.4)

(2.4)

Exceptional items

0.0

0.0

0.0

0.0

(1.2)

(3.7)

(0.6)

0.0

0.0

Non-recurring items

0.0

0.0

0.0

0.0

0.0

0.0

(2.4)

0.0

0.0

Operating profit

8.9

10.4

10.4

11.3

9.7

6.4

1.2

6.9

9.1

Net Interest

1.2

1.5

1.5

1.3

1.6

1.3

0.2

0.3

0.3

Profit before tax

10.1

11.9

11.9

12.6

11.3

7.7

1.5

7.2

9.4

Adjust for:

Exceptional items

0.0

0.0

0.0

0.0

1.2

3.7

0.6

0.0

0.0

Other non-recurring items

0.0

0.0

0.0

0.0

0.0

0.0

2.4

0.0

0.0

Adjusted Profit Before Tax

10.1

11.9

11.9

12.6

12.5

11.4

4.5

7.2

9.4

Tax

(2.3)

(2.2)

(2.4)

(2.4)

(2.4)

(2.2)

(0.3)

(1.4)

(1.8)

Profit after tax (IFRS)

7.9

9.7

9.5

10.2

8.9

5.5

1.2

5.8

7.6

Adjusted profit after tax

7.9

9.7

9.5

10.2

10.1

9.2

4.2

5.8

7.6

Average number of shares (m)

182.5

183.7

183.9

185.3

186.0

186.3

186.3

186.3

186.3

Fully diluted average number of shares (m)

184.7

187.2

187.2

185.9

186.1

186.3

186.3

186.3

186.3

Basic EPS - IFRS (p)

4.3

5.3

5.2

5.5

4.8

3.0

0.6

3.1

4.1

Fully diluted EPS - IFRS (p)

4.3

5.2

5.1

5.5

4.8

3.0

0.6

3.1

4.1

Adjusted EPS (excludes exceptional/nonrecurring items)

4.3

5.2

5.1

5.5

5.4

4.9

2.3

3.1

4.1

Dividend per share (p)

2.40

2.75

2.90

3.05

3.20

0.00

1.20

1.50

2.10

Payout ratio (adjusted earnings)

56.4%

53.0%

57.1%

55.5%

59.0%

0.0%

52.7%

48.2%

51.2%

BALANCE SHEET

Non-current assets

13.9

13.7

14.4

14.9

12.6

16.2

19.0

19.9

20.9

Goodwill

1.3

1.3

2.2

2.2

2.2

0.8

0.8

0.8

0.8

Other intangible assets

3.2

3.0

2.7

2.3

2.3

4.8

7.0

7.8

8.5

Property, plant, & equipment

8.1

8.0

7.7

7.7

6.2

2.7

2.9

3.1

3.3

Retirement benefit asset

1.3

1.4

1.8

2.7

1.9

4.2

4.2

4.2

4.2

Other non-current assets

0.0

0.0

0.0

0.0

0.0

3.8

4.0

4.0

4.0

Current assets

107.1

119.5

129.3

142.4

153.5

148.0

157.9

140.6

148.4

Inventories

31.9

21.8

26.3

38.1

45.7

2.8

2.0

2.5

25.0

Trade & other receivables

11.3

8.9

9.2

10.9

12.6

9.5

12.5

10.0

10.6

Monies held in trust

65.7

75.2

83.0

87.0

99.3

102.7

108.7

107.6

116.2

Cash & equivalents

26.3

32.7

34.2

40.3

36.9

29.6

32.9

18.7

17.2

Other current assets

(28.1)

(19.1)

(23.5)

(33.9)

(41.0)

3.4

1.8

1.8

(20.7)

Current liabilities

(121.5)

(128.2)

(133.8)

(142.6)

(148.8)

(140.7)

(152.0)

(132.1)

(135.6)

Trade & other payables

(776.9)

(831.4)

(872.0)

(945.9)

(611.9)

(57.2)

(56.5)

(56.1)

(60.4)

Tax payable

(0.7)

(0.3)

(0.4)

0.0

(0.6)

0.0

0.0

0.0

0.0

Provisions

(43.2)

(44.8)

(46.2)

(48.0)

(58.3)

(53.8)

(65.7)

(47.9)

(46.2)

Non-current liabilities

(2.9)

(1.9)

(1.1)

(0.7)

(0.6)

(5.3)

(5.5)

(5.5)

(5.5)

Deferred tax liability

(.3)

(.2)

(.2)

(.7)

(.6)

(1.1)

(1.0)

(1.0)

(1.0)

Retirement benefit obligation

(2.6)

(1.7)

(.9)

0.0

0.0

0.0

0.0

0.0

0.0

Lease liabilities

0.0

0.0

0.0

0.0

0.0

(4.1)

(4.4)

(4.4)

(4.4)

Net assets

(3.4)

3.2

8.8

14.0

16.7

18.3

19.5

23.0

28.2

CASH FLOW

Operating Cash Flow

14.1

12.2

9.6

10.5

6.9

6.9

6.5

(7.6)

5.6

Net interest

1.2

1.3

1.5

1.3

1.5

1.6

0.3

0.3

0.3

Tax paid

(2.1)

(2.5)

(2.3)

(2.5)

(1.6)

(2.9)

(1.9)

(1.4)

(1.8)

Capex

(0.6)

(1.1)

(0.7)

(1.0)

(1.2)

(5.0)

(4.6)

(3.3)

(3.3)

Acquisitions/disposals

0.0

0.1

(0.9)

0.0

0.0

0.0

3.0

0.0

0.0

Dividends paid

(4.2)

(4.4)

(5.1)

(5.4)

(5.7)

(6.0)

0.0

(2.2)

(2.4)

Other

0.0

0.0

0.3

0.0

0.3

0.4

(0.1)

0.0

0.0

Net cash flow

8.4

5.6

2.5

2.9

0.3

(4.9)

3.3

(14.2)

(1.5)

Opening net (debt)/cash

14.8

23.2

28.8

31.4

34.2

34.6

29.6

32.9

18.7

Closing net (debt)/cash

23.2

28.8

31.4

34.2

34.6

29.6

32.9

18.7

17.2

Overdraft

3.1

3.9

2.9

6.1

2.3

0.0

0.0

0.0

0.0

Closing net (debt)/cash as per balance sheet

26.3

32.7

34.2

40.3

36.9

29.6

32.9

18.7

17.2

Source: Appreciate Group historical data, Edison Investment Research forecasts


General disclaimer and copyright

This report has been commissioned by Appreciate Group and prepared and issued by Edison, in consideration of a fee payable by Appreciate Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Appreciate Group and prepared and issued by Edison, in consideration of a fee payable by Appreciate Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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