Comments at the AGM point to lower headline sales ytd but underlying patterns and indications of further improvement in H2 offer encouragement. Our estimates are unchanged and at this level the share price appears to offer excellent value if the company can deliver against FY19 guidance.
Written by
Walker Greenbank |
Seeing improving signs |
AGM update |
Care & household goods |
28 June 2018 |
Share price performance
Business description
Next events
Analyst
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Comments at the AGM point to lower headline sales ytd but underlying patterns and indications of further improvement in H2 offer encouragement. Our estimates are unchanged and at this level the share price appears to offer excellent value if the company can deliver against FY19 guidance.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/17 |
92.4 |
10.4 |
12.9 |
3.6 |
8.8 |
3.2 |
01/18 |
108.8 |
12.5 |
14.4 |
4.4 |
7.9 |
3.9 |
01/19e |
111.0 |
12.8 |
14.4 |
4.6 |
7.9 |
4.1 |
01/20e |
114.4 |
13.3 |
15.0 |
4.9 |
7.6 |
4.3 |
Note: *PBT and EPS (fully diluted) are normalised, excluding exceptional items and LTIP charges.
Starting to turn sales performance around
In the first four-and-a-half months of FY19, Brand revenues were c 5% lower y-o-y we estimate (comprising -6% in the UK, -1.9% overseas and a modest FX translation headwind). While this is behind the implied run rate for H218 as a whole, it does represent progress from a weaker Q4 as evidenced by management’s expectation of ‘further improvement’ with regard to H2 trading. Following a strong start to FY18, we would also point to tough comparatives at the beginning of the year, which serve to mask the recovery pattern of recent months. Licensing has been a small but growing contributor (FY18 £3.1m sales, +21.6% y-o-y) and momentum appears to be continuing so far in FY19 in this higher-margin income category. Manufacturing performance will have been influenced by Brand division activity levels but also third-party customers and should have seen a boost from work at Anstey that was deferred from the end of FY18.
Reasons for H2 positivity
For the record, our FY19 estimates include group revenue growth of c 2%, comprising less than 1% from Brands and +5-6% in Manufacturing. We are reminded that the second half is traditionally a stronger trading period; while this did not transpire in FY18 in revenue terms due to irregular and weak demand patterns, it does mean the comparatives become easier for these reasons as the year progresses. Even on flat H1/H2 revenues last year, both gross and operating profit were higher in the second half. Hence, we believe it is reasonable to retain our existing projections. We anticipate hearing more about the development of international sales and licence income as the year progresses.
Valuation: Catalyst for share price recovery
The share price continues to sit towards the lower end of its ytd trading range. We believe that meeting this year’s estimates would be sufficient to stimulate a share price pick up and management has indicated it is on track to do so. Hence, the current year P/E and EV/EBITDA (adjusted for pension cash contributions) of 7.9x and 5.8x respectively offer investors an excellent entry point, in our view.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
||
January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
75.7 |
78.4 |
83.4 |
87.8 |
92.4 |
108.8 |
111.0 |
114.4 |
118.7 |
Cost of Sales |
|
|
(30.2) |
(30.3) |
(32.7) |
(35.9) |
(36.2) |
(43.3) |
(43.7) |
(45.1) |
(46.8) |
Gross Profit |
|
|
45.5 |
48.1 |
50.7 |
52.0 |
56.2 |
65.5 |
67.3 |
69.3 |
71.9 |
EBITDA |
|
|
8.6 |
9.7 |
10.7 |
11.8 |
13.4 |
15.9 |
16.2 |
16.8 |
17.5 |
Operating Profit (before GW, except. & LTIP) |
6.6 |
7.5 |
8.3 |
9.1 |
10.6 |
12.8 |
13.1 |
13.5 |
14.1 |
||
Operating Profit (before GW and except.) - reported |
5.8 |
6.5 |
7.3 |
8.2 |
9.8 |
12.4 |
12.5 |
12.9 |
13.5 |
||
Net Interest |
|
|
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.3) |
(0.3) |
(0.1) |
(0.0) |
Intangible Amortisation - acquired |
|
|
0 |
0 |
0 |
0 |
(0.3) |
(1.0) |
(1.0) |
(1.0) |
(1.0) |
Pension net finance charge |
(0.7) |
(0.9) |
(0.8) |
(0.7) |
(0.5) |
(0.6) |
(0.6) |
(0.6) |
(0.6) |
||
Exceptionals |
|
|
0 |
0 |
0 |
0 |
(1.8) |
2.3 |
0.0 |
0.0 |
0.0 |
Other |
|
|
0 |
0 |
0 |
0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Profit Before Tax (norm) |
|
|
6.4 |
7.3 |
8.1 |
8.9 |
10.4 |
12.5 |
12.8 |
13.3 |
14.1 |
Profit Before Tax (FRS 3) |
|
|
4.9 |
5.5 |
6.3 |
7.3 |
7.0 |
12.8 |
10.6 |
11.1 |
11.9 |
Tax |
|
|
(1.0) |
(0.5) |
(1.2) |
(1.5) |
(1.6) |
(1.0) |
(2.6) |
(2.7) |
(2.9) |
Profit After Tax (norm) |
|
|
5.4 |
6.6 |
6.9 |
7.5 |
8.6 |
11.5 |
10.2 |
10.6 |
11.2 |
Profit After Tax (FRS 3) |
|
|
4.0 |
5.0 |
5.1 |
5.9 |
5.4 |
11.8 |
8.0 |
8.4 |
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
57.5 |
58.5 |
59.3 |
60.0 |
62.7 |
70.4 |
70.7 |
70.7 |
70.7 |
|
EPS - normalised (p) FD |
|
|
9.4 |
10.7 |
11.2 |
11.6 |
12.9 |
14.4 |
14.4 |
15.0 |
15.8 |
EPS - FRS 3 (p) |
|
|
6.9 |
8.6 |
8.6 |
9.8 |
8.6 |
16.7 |
11.3 |
11.9 |
12.7 |
Dividend per share (p) |
|
|
1.5 |
1.9 |
2.3 |
2.9 |
3.6 |
4.4 |
4.6 |
4.9 |
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
60.1 |
61.3 |
60.8 |
59.2 |
60.8 |
60.2 |
60.6 |
60.6 |
60.6 |
EBITDA Margin (%) |
|
|
11.4 |
12.4 |
12.8 |
13.4 |
14.6 |
14.6 |
14.6 |
14.6 |
14.7 |
Operating Margin (before GW and except.) (%) |
7.7 |
8.3 |
8.8 |
9.3 |
10.7 |
11.4 |
11.2 |
11.3 |
11.4 |
||
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
18.5 |
21.1 |
21.5 |
18.9 |
47.5 |
47.7 |
47.6 |
46.8 |
45.9 |
Intangible Assets |
|
|
6.7 |
7.3 |
7.2 |
7.1 |
31.6 |
31.8 |
30.6 |
29.5 |
28.4 |
Tangible Assets |
|
|
9.8 |
11.7 |
12.7 |
11.7 |
15.8 |
16.0 |
16.9 |
17.3 |
17.5 |
Investments |
|
|
2.0 |
2.2 |
1.6 |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Current Assets |
|
|
32.6 |
35.3 |
37.1 |
40.3 |
51.3 |
51.9 |
53.5 |
54.4 |
59.6 |
Stocks |
|
|
16.8 |
18.4 |
22.0 |
18.1 |
30.3 |
29.4 |
30.2 |
31.1 |
32.3 |
Debtors |
|
|
12.8 |
13.9 |
14.1 |
19.3 |
19.5 |
21.2 |
22.0 |
22.5 |
23.1 |
Cash |
|
|
2.9 |
2.8 |
1.0 |
2.9 |
1.5 |
1.3 |
1.3 |
0.8 |
4.2 |
Other |
|
|
0.1 |
0.2 |
0.0 |
0.0 |
|
|
|
|
|
Current Liabilities |
|
|
(17.3) |
(19.4) |
(20.7) |
(19.4) |
(34.8) |
(28.9) |
(27.4) |
(24.6) |
(25.6) |
Creditors |
|
|
(16.9) |
(19.0) |
(20.3) |
(19.0) |
(28.0) |
(22.4) |
(23.7) |
(24.6) |
(25.6) |
Short term borrowings |
|
|
(0.4) |
(0.4) |
(0.4) |
(0.4) |
(6.8) |
(6.6) |
(3.7) |
0.0 |
0.0 |
Long Term Liabilities |
|
|
(9.6) |
(10.2) |
(10.9) |
(4.5) |
(12.7) |
(9.1) |
(7.1) |
(5.0) |
(2.8) |
Long term borrowings |
|
|
(1.4) |
(0.9) |
(0.6) |
(0.2) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other long term liabilities |
|
|
(8.2) |
(9.2) |
(10.4) |
(4.3) |
(12.7) |
(9.1) |
(7.1) |
(5.0) |
(2.8) |
Net Assets |
|
|
24.2 |
26.9 |
26.9 |
35.3 |
51.3 |
61.6 |
66.5 |
71.5 |
77.0 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
6.0 |
6.2 |
3.5 |
7.1 |
12.4 |
7.0 |
12.7 |
12.9 |
13.3 |
Net Interest |
|
|
(0.2) |
(0.2) |
(0.2) |
(0.1) |
(0.2) |
(0.2) |
(0.2) |
(0.1) |
0.0 |
Tax |
|
|
(0.0) |
(0.0) |
(0.0) |
(0.6) |
(2.3) |
(2.2) |
(2.6) |
(2.7) |
(2.9) |
Capex |
|
|
(3.1) |
(4.7) |
(3.2) |
(2.5) |
(6.7) |
(3.5) |
(4.0) |
(3.5) |
(3.5) |
Acquisitions/disposals |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
(27.1) |
0.0 |
0.0 |
0.0 |
0.0 |
Financing |
|
|
(0.1) |
(0.0) |
(0.4) |
(0.1) |
18.3 |
1.8 |
0.0 |
0.0 |
0.0 |
Dividends |
|
|
(0.7) |
(0.9) |
(1.1) |
(1.4) |
(1.8) |
(2.7) |
(3.1) |
(3.4) |
(3.5) |
Net Cash Flow |
|
|
1.8 |
0.3 |
(1.5) |
2.3 |
(7.4) |
0.1 |
2.8 |
3.2 |
3.4 |
Opening net debt/(cash) |
|
|
0.7 |
(1.2) |
(1.5) |
(0.0) |
(2.3) |
5.3 |
5.3 |
2.4 |
(0.8) |
HP finance leases initiated |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
(0.0) |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
(0.2) |
(0.1) |
0.0 |
0.0 |
0.0 |
Closing net debt/(cash) |
|
|
(1.2) |
(1.5) |
(0.0) |
(2.3) |
5.3 |
5.3 |
2.4 |
(0.8) |
(4.2) |
Source: Company accounts, Edison Investment Research
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Max 21’s repositioning, with the sale of loss-making NECDIS at end 2017 and its refocus on creating recurring revenues from hybrid business communications specialist, Binect, and IT security system provider, KeyIdentity, helped sharply reduce EBITDA losses in Q118. Binect achieved a 21% y-o-y increase in revenues and positive EBITDA after break-even in Q417. At KeyIdentity, underlying revenues grew 61% y-o-y and losses at the EBITDA level were reduced by 22% to €451k, helped by cost-cutting and growth in recurring revenues. We see current management guidance for 27% underlying revenue growth and an EBITDA loss of no more than €2.5m, followed by EBITDA break-even in 2019 (one year later than forecast previously), as reasonable and achievable.