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Low & Bonar — Slightly softer end to FY17

Low & Bonar — Slightly softer end to FY17

A year end update led to a c 5% reduction in our FY17 PBT expectation. More detail on trading performance will emerge with the FY17 results due on 31 January and we will review our group estimates fully at that time. Investors will look for signs of trading stability and prospective cash generation, while eyeing a dividend yield of c 6%. The search for a new CEO is unlikely to have concluded by then, in our view; the role is being covered in the short term by an experienced existing NED.

Analyst avatar placeholder

Written by

Low & Bonar

Slightly softer end to FY17

Trading update

Construction & materials

3 January 2018

Price

53.0p

Market cap

£175m

€1.12/£

Net debt (£m) at end May 2017

149

Shares in issue

329.4m

Free float

99%

Code

LWB

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(19.1)

(34.2)

(19.1)

Rel (local)

(22.6)

(36.0)

(25.4)

52-week high/low

89.8p

53.0p

Business description

Low & Bonar produces specialist performance materials for a variety of end-markets by combining polymers with specialty additives and pigments. It now reports as four global business units: Civil Engineering (23% of FY16 revenue), Building & Industrial (18%), Interiors & Transport (26%), and Coated Technical Textiles (33%).

Next events

FY17 results

31 January 2018

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Low & Bonar is a research client of Edison Investment Research Limited

A year end update led to a c 5% reduction in our FY17 PBT expectation. More detail on trading performance will emerge with the FY17 results due on 31 January and we will review our group estimates fully at that time. Investors will look for signs of trading stability and prospective cash generation, while eyeing a dividend yield of c 6%. The search for a new CEO is unlikely to have concluded by then, in our view; the role is being covered in the short term by an experienced existing NED.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

11/15

362.1

27.4

5.8

2.8

9.6

5.2

11/16

402.2

29.2

6.0

3.0

8.9

5.7

11/17e

445.0

30.3

6.1

3.2

8.6

6.0

11/18e

445.4

36.3

7.4

3.3

7.2

6.2

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles and exceptional items. Excludes disposed grass yarns business.

Weaker final quarter in Coated Technical Textiles

Year-end management guidance (20 December) pointed to a likely PBT norm outturn in the £30-31m range. (Our pre-update expectation was £31.8m, market range £31.8-33.0m.) Action taken to move older, lower-margin Coated Technical Textiles (CTT) inventory affected sales mix in the final quarter, leading to revised guidance. This suggests that H217 CTT profitability was flat to slightly down y-o-y, after a good H1 performance. As a result, we have reduced our FY17 PBT norm estimate by 4.7%. Market conditions were otherwise described as stable, although there were no further specific comments on trading in the other business units.

More detail to emerge with FY17 results

FY17 results are due to be released on 31 January and we will review group estimates more fully at that time in the context of a more detailed update. (We are aware that others may have also lowered out-year estimates although the basis for this is not clear.) We note that end-FY17 net debt is expected to be c £138m. In addition to a trading overview, we expect FY17 results to provide commentary on the previously flagged Civil Engineering business unit strategic review. With the intended departure of Brett Simpson for the CEO role at Fenner in April, results presentations are likely to be led by NED/interim CEO Trudy Schoolenberg alongside CFO Philip de Klerk (appointed in October 2017).

Valuation: Single-digit P/E, yield approaching 6%

The trading update was followed by a c 20% share price reduction on the day of the announcement, which may have reflected larger downgrades elsewhere. On our estimates, the closing year P/E and EV/EBITDA (adjusted for pensions cash and on a projected debt basis) multiples are 8.6x and 6.3x respectively. While we acknowledge that greater clarity on future prospects would be helpful, we consider that FY18 earnings are likely to show reasonable progress and, hence, generate prospective multiples below those noted for FY17 with a yield approaching 6%.

Exhibit 1: Financial summary

£m

2014

2015

2015

2016

2017e

2018e

2019e

Year end 30 November

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

IAS19R

IAS19R

Restated IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

Revenue

 

 

410.6

395.8

362.1

402.2

445.0

445.4

459.6

Cost of Sales

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Gross Profit

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA

 

 

45.6

46.9

46.0

52.8

54.3

61.3

64.5

Operating Profit (ex SBP)

 

 

32.3

33.4

32.5

35.6

36.1

42.1

44.3

Net Interest

(5.0)

(4.2)

(4.3)

(5.4)

(4.5)

(4.5)

(4.3)

SBP

(0.6)

(0.6)

(0.6)

(0.9)

(1.2)

(1.2)

(1.2)

Saudi JV

(1.1)

(1.8)

0.0

0.0

0.0

0.0

0.0

PNFC

(0.4)

(0.2)

(0.2)

(0.1)

(0.1)

(0.1)

(0.1)

Profit Before Tax (company norm)

 

25.2

26.5

27.4

29.2

30.3

36.3

38.7

Intangible Amortisation

(5.2)

(4.1)

(4.1)

(4.0)

(4.0)

(4.0)

(4.0)

Exceptionals

(3.3)

(10.1)

(1.9)

0.7

(11)

0

0

Profit Before Tax (FRS 3)

 

 

16.7

12.4

21.4

25.9

15.7

32.3

34.7

Tax

(4.9)

(6.3)

(6.2)

(8.2)

(8.6)

(10.9)

(11.6)

Minorities

(0.3)

(0.5)

(0.5)

(0.6)

(0.6)

(0.6)

(0.6)

Other

(9.0)

(3.2)

Profit After Tax (norm)

18.3

18.6

19.0

19.9

20.6

24.8

26.5

Profit After Tax (FRS 3)

11.8

6.1

5.7

13.9

6.4

20.7

22.4

Average Number of Shares Outstanding (m)

327.0

328.1

328.1

329.0

329.3

329.3

329.3

EPS FD- normalised (p)

 

 

5.4

5.5

5.8

6.0

6.1

7.4

7.9

EPS - FRS 3 (p)

 

 

3.5

1.7

1.7

5.2

2.0

6.3

6.8

Dividend per share (p)

2.7

2.8

2.8

3.0

3.2

3.3

3.5

Gross Margin (%)

EBITDA Margin (%)

11.1

11.8

11.8

13.1

12.2

13.8

14.0

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

7.9

8.4

8.4

8.9

8.1

9.5

9.6

BALANCE SHEET

Fixed Assets

 

 

230.2

232.0

 

261.2

266.1

272.1

275.1

Intangible Assets

105.8

89.9

104.8

110.5

109.5

106.5

Tangible Assets

119.3

132.0

150.3

149.0

156.0

162.0

Investments

5.1

10.1

6.1

6.6

6.6

6.6

Current Assets

 

 

192.0

187.6

 

202.9

224.7

227.8

236.9

Stocks

90.9

82.6

97.5

107.9

106.0

107.4

Debtors

62.8

62.9

70.3

78.8

77.9

79.4

Other

12.5

8.2

8.7

10.3

10.3

10.3

Cash

25.8

33.9

26.3

27.7

33.6

39.8

Current Liabilities

 

 

(87.7)

(114.4)

 

(88.9)

(94.1)

(96.9)

(101.9)

Creditors

(87.7)

(82.9)

(88.8)

(93.9)

(96.9)

(101.9)

Short term borrowings

0.0

(31.5)

(0.1)

(0.2)

0.0

0.0

Long Term Liabilities

 

 

(147.6)

(133.3)

 

(171.5)

(194.7)

(190.2)

(185.7)

Long term borrowings

(113.8)

(104.5)

(137.2)

(165.5)

(165.5)

(165.5)

Other long term liabilities

(33.8)

(28.7)

(34.3)

(29.2)

(24.7)

(20.2)

Net Assets

 

 

186.9

171.9

 

203.6

202.0

212.9

224.4

CASH FLOW

Operating Cash Flow

 

 

34.1

35.3

 

33.9

29.6

60.6

59.6

Net Interest

(4.5)

(4.5)

(4.9)

(4.5)

(4.5)

(4.3)

Tax

(7.7)

(7.5)

(10.8)

(9.1)

(10.9)

(11.6)

Capex

(20.2)

(33.7)

(22.2)

(35.0)

(28.0)

(26.0)

Acquisitions/disposals

3.0

0.0

21.7

5.1

(0.5)

0.0

Financing

0

(1)

(0)

(1)

0

0

Dividends

(8.8)

(9.0)

(9.2)

(10.1)

(10.5)

(11.5)

Net Cash Flow

(4.0)

(20.2)

8.4

(24.6)

6.1

6.2

Opening net debt/(cash)

 

 

86.8

88.0

 

102.1

111.0

138.0

131.9

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

2.8

6.1

(17.3)

(2.4)

0.0

0.0

Closing net debt/(cash)

 

 

88.0

102.1

 

111.0

138.0

131.9

125.7

Source: Company accounts, 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Low & Bonar 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

New York, NY10017

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

295 Madison Avenue, 18th Floor

New York, NY10017

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Low & Bonar 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

New York, NY10017

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

295 Madison Avenue, 18th Floor

New York, NY10017

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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International Stem Cell recently announced interim six-month results from the first cohort of four patients in its Phase I trial of ISC-hpNSC in Parkinson’s disease (PD). Positive signals were seen in a variety of measures, which include daily living, mobility, depression and compulsive disorders. The trial is continuing and the second cohort is almost enrolled, with the third patient of four recently undergoing surgical implantation. The study will enroll 12 patients at three dosing regimens (30-70m cells).

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