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Hogg Robinson Group — On a journey

Hogg Robinson Group — On a journey

Hogg Robinson (HRG) has combined a strong set of financials with a declaration of medium-term growth initiatives in both travel management and FinTech. Importantly, their implementation should be facilitated by the success of management’s largely completed restructuring and deleveraging programme. While there will be a short-term cost (we are reducing our current-year PBT forecast by 17%), this is wholly related to stated opex investment rather than any business deterioration (our revenue forecast is unchanged). Robust finances (FY17 net debt/EBITDA of just 0.3x) should allow continued dividend growth (FY17 cover of 3.0x).

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Hogg Robinson Group

On a journey

Final results

Support services

30 May 2017

Price

70p

Market cap

£228m

Net debt (£m) at March 2017

21.0

Shares in issue

325.6m

Free float

52%

Code

HRG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.4)

1.6

1.5

Rel (local)

(3.3)

(2.7)

(15.1)

52-week high/low

77p

62p

Business description

Hogg Robinson is an international corporate services company, specialising in travel, expenses and data management.

Next events

IMS

27 July 2017

Analysts

Richard Finch

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

Hogg Robinson Group is a research client of Edison Investment Research Limited

Hogg Robinson (HRG) has combined a strong set of financials with a declaration of medium-term growth initiatives in both travel management and FinTech. Importantly, their implementation should be facilitated by the success of management’s largely completed restructuring and deleveraging programme. While there will be a short-term cost (we are reducing our current-year PBT forecast by 17%), this is wholly related to stated opex investment rather than any business deterioration (our revenue forecast is unchanged). Robust finances (FY17 net debt/EBITDA of just 0.3x) should allow continued dividend growth (FY17 cover of 3.0x).

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

318.3

32.2

7.2

2.51

9.7

3.6

03/17

335.1

37.0

7.8

2.64

9.0

3.8

03/18e

336.0

31.0

6.6

2.77

10.6

4.0

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H2: Fraedom shows its potential

After H1 +4% constant currency trading profit, an unchanged H2 outturn was predictable in view of more difficult comparatives and still testing conditions. Indeed the 7% weakening in Travel Management constant currency revenue (down 4% in H1) was in line with our forecast as heightened client churn and Brexit-related uncertainty added to longstanding aggressive competitor pricing and the move to online self-booking by clients. However, the 6% decrease in constant currency trading profit was slightly more than we expected but more than made up by an excellent performance (like-for-like +72%) by Fraedom as its H1 investment started to pay off. Net debt reduced by £10m in H2 to £21m (down 38% on March 2016).

Reduction in forecasts reflects investment

HRG’s long-awaited review has elicited a formal growth strategy, based on group-wide investment in staff and technology. Incremental opex is projected at £25m over three years. The targeted benefit is “significant,” ie Travel Management revenue CAGR of at least 2% at medium-term margin of more than 15% (FY17 13.6%), while Fraedom is to grow by c 20% CAGR. The current year is one of “transition” as likely £6m initial costs are absorbed and our PBT forecast is duly revised. Continuing strong cash generation should ensure minimal rise in net debt.

Valuation: Re-rating due on signs of growth

Growth comes at a price, so the immediate earnings setback should not alarm. Rather, HRG should be rewarded for shedding a reliance on cost savings for profit improvement, while financial flexibility and hard-won efficiencies leave it well-placed to take advantage of investment opportunities (such as the planned purchase of digital travel innovator eWings.com) and to continue to grow dividends. There was a welcome reduction in the pension deficit in H2 (stable year-on-year despite a lower discount rate).

Financial summary

Exhibit 1: Financial summary

£000s

2015

2016

2017

2018e

Year-end March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

330,100

318,300

335,100

336,000

EBITDA

 

 

53,400

55,500

60,700

57,500

Operating Profit (before GW and except)

 

 

42,500

44,800

49,400

45,500

Exceptional Items

(6,300)

(4,800)

(3,700)

(2,500)

Amortisation of Acquired Intangibles

(1,000)

(700)

(200)

0

Associates/JVs

1,100

1,000

900

1,000

Operating Profit

36,300

40,300

46,400

44,000

Net Interest

(13,100)

(13,600)

(13,300)

(15,500)

Profit Before Tax (norm)

 

 

30,500

32,200

37,000

31,000

Profit Before Tax (FRS 3)

 

 

23,200

26,700

33,100

28,500

Tax

(7,500)

(7,400)

(9,500)

(8,000)

Adjustment to tax for normalised earnings

(800)

(1,000)

(900)

(700)

Profit After Tax (norm)

23,000

24,800

27,500

23,000

Profit After Tax (FRS 3)

15,700

19,300

23,600

20,500

Minority charge

(1,000)

(600)

(1,300)

(700)

Average Number of Shares Outstanding (m)

322.7

324.2

323.7

325.5

EPS - normalised (p)

 

 

6.57

7.16

7.82

6.64

EPS - FRS 3 (p)

 

 

4.56

5.77

6.89

6.08

Dividend per share (p)

2.3

2.5

2.6

2.8

EBITDA Margin (%)

16.2

17.4

18.1

17.1

Operating Margin (before GW and except.) (%)

12.9

14.1

14.7

13.5

BALANCE SHEET

Fixed Assets

 

 

304,500

305,400

314,900

327,000

Intangible Assets

236,800

242,100

256,900

262,000

Tangible Assets

9,800

8,800

8,400

9,000

Investments

57,900

54,500

49,600

56,000

Current Assets

 

 

145,800

139,000

142,600

150,000

Stocks

0

0

0

0

Debtors

105,500

93,300

106,500

110,000

Cash

38,400

43,800

35,100

38,000

Current Liabilities

 

 

(167,700)

(159,500)

(165,800)

(193,000)

Creditors

(167,600)

(149,500)

(155,700)

(153,000)

Short term borrowings

(100)

(10,000)

(10,100)

(40,000)

Long Term Liabilities

 

 

(355,400)

(334,800)

(318,000)

(299,000)

Long term borrowings

(93,000)

(67,400)

(46,000)

(24,000)

Other long term liabilities

(262,400)

(267,400)

(272,000)

(275,000)

Net Assets

 

 

(72,800)

(49,900)

(26,300)

(15,000)

CASH FLOW

Operating Cash Flow

 

 

39,900

48,100

42,900

40,000

Net Interest

(4,300)

(4,200)

(3,500)

(4,000)

Tax

(4,000)

(5,400)

(8,900)

(10,000)

Capex

(11,300)

(8,300)

(11,000)

(16,000)

Acquisitions/disposals

0

0

500

(4,000)

Other

(2,600)

(1,400)

800

(2,300)

Dividends

(7,100)

(7,700)

(8,200)

(8,700)

Net Cash Flow

10,600

21,100

12,600

(5,000)

Opening net debt/(cash)

 

 

65,300

54,700

33,600

21,000

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

54,700

33,600

21,000

26,000

Source: Hogg Robinson data; 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 Hogg Robinson 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 Hogg Robinson 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

Research: Industrials

Polypipe — Meeting management growth expectations

The latest trading update shows that all three reporting divisions are continuing to progress well and management expectations for the year are unchanged. Polypipe is a well-positioned business and management succession indicates continuity of the strategic approach. A premium rating to the sector is warranted, in our view.

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