UK workflow in some Consultancy Services lines is not coming through as quickly as anticipated in the August trading update, though international performance has shown more stability. FY18 guidance is now for £3.5m to £4m group EBIT and, pending an update with H118 results (5 December), we have elected to reflect the lower revenue run rate in future periods also. A period of consistent earnings delivery is required to improve sentiment.
Written by
WYG |
Slower than expected revenue build |
Trading update |
Industrial support services |
28 November 2017 |
Share price performance
Business description
Next events
Analyst
WYG is a research client of Edison Investment Research Limited |
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UK workflow in some Consultancy Services lines is not coming through as quickly as anticipated in the August trading update, though international performance has shown more stability. FY18 guidance is now for £3.5m to £4m group EBIT and, pending an update with H118 results (5 December), we have elected to reflect the lower revenue run rate in future periods also. A period of consistent earnings delivery is required to improve sentiment.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/16 |
133.5 |
7.0 |
10.6 |
1.5 |
3.9 |
3.6 |
03/17 |
151.8 |
8.2 |
11.9 |
1.8 |
3.5 |
4.3 |
03/18e |
154.0 |
2.8 |
3.2 |
1.8 |
13.0 |
4.3 |
03/19e |
164.0 |
4.5 |
5.2 |
1.9 |
8.0 |
4.6 |
Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Challenging UK conditions
A combination of slower order placement under framework agreements, staff change and competitive markets have together restricted the rate of pick up in UK revenues compared to expected levels so far in H2. This applies to both existing business on hand and new business development and appears to be more private sector oriented, though not exclusively so. Frustratingly, planning/transport planning and advisory service lines continue to experience business challenges in some otherwise buoyant areas while the need to support asset management framework clients even during quieter periods is also unhelpful for profitability in that business stream. Activity levels in Africa have been in building line with management expectations and this provides an important underpin to International Development financial performance.
H118 results to add insight on underlying trends
When H118 results are announced, there should be good visibility for the remainder of the year and probably beyond for overseas projects, which typically have longer order book positions. There will be close scrutiny of underlying UK market and service trends; we have lowered our revenue estimates by £3.5m in FY18 and £3m in the following two years. Operational gearing under the UK direct delivery model means that these adjustments effectively all drop through to our EBIT expectations. We have also nudged up our interest cost line consistent with lower cash generation over our estimate horizon.
Valuation: Factoring in recovering earnings
WYG’s share price has understandably been under pressure. H118 results will play an important part in restoring confidence in the company’s earnings outlook. Based on revised estimates, the FY19 P/E is 8.0x after a partial recovery from an FY18 earnings dip. We feel it appropriate to trim our previous dividend growth expectations, though the trailing and prospective yield is still c 4%.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
IAS19R |
IAS19R |
IAS19R |
IAS19R |
IAS19R |
IAS19R |
IAS19R |
IAS19R |
Revenue |
|
|
125.7 |
126.9 |
130.5 |
133.5 |
151.8 |
154.0 |
164.0 |
172.0 |
EBITDA |
|
|
3.3 |
6.4 |
7.2 |
9.0 |
10.6 |
5.7 |
7.5 |
8.2 |
Operating Profit (before GW and except.) |
1.5 |
4.8 |
5.4 |
7.2 |
8.6 |
3.6 |
5.2 |
5.7 |
||
Net Interest |
|
|
(0.8) |
(0.6) |
(0.1) |
(0.2) |
(0.6) |
(0.8) |
(0.7) |
(0.6) |
JV / Associates |
|
|
0.0 |
0.0 |
0.4 |
(0.0) |
0.2 |
0.0 |
0.0 |
0.0 |
Intangible Amortisation |
|
|
(1.0) |
(1.2) |
(1.3) |
(1.5) |
(1.9) |
(1.9) |
(1.9) |
(1.9) |
Other |
|
|
(2.5) |
(3.7) |
(2.9) |
(1.5) |
(0.7) |
(0.7) |
(0.7) |
(0.7) |
Exceptionals |
|
|
(0.6) |
2.4 |
0.0 |
(1.8) |
(4.0) |
0.0 |
0.0 |
0.0 |
Profit Before Tax (norm) |
|
|
0.7 |
4.3 |
5.7 |
7.0 |
8.2 |
2.8 |
4.5 |
5.1 |
Profit Before Tax (FRS 3) |
|
|
(3.3) |
1.8 |
1.4 |
2.2 |
1.6 |
0.2 |
1.9 |
2.5 |
Tax |
|
|
(0.1) |
0.3 |
0.5 |
0.6 |
0.8 |
(0.4) |
(0.7) |
(0.8) |
Minorities |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Profit After Tax (norm) |
|
|
0.7 |
4.5 |
6.2 |
7.6 |
9.0 |
2.4 |
3.8 |
4.4 |
Profit After Tax (FRS 3) |
|
|
(3.4) |
2.1 |
1.9 |
2.8 |
2.4 |
(0.2) |
1.2 |
1.7 |
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
64.5 |
64.6 |
65.8 |
70.6 |
71.1 |
71.9 |
69.9 |
69.9 |
|
EPS - normalised fully diluted (p) |
|
|
0.8 |
6.4 |
8.6 |
10.6 |
11.9 |
3.2 |
5.2 |
5.9 |
EPS - FRS 3 (p) |
|
|
(5.2) |
3.2 |
2.9 |
4.0 |
3.3 |
(0.3) |
1.7 |
2.5 |
Dividend per share (p) |
|
|
0.0 |
0.5 |
1.0 |
1.5 |
1.8 |
1.8 |
1.9 |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin (%) |
|
|
2.6 |
5.1 |
5.5 |
6.8 |
7.0 |
3.7 |
4.6 |
4.8 |
Operating Margin (before GW and except.) (%) |
1.2 |
3.8 |
4.1 |
5.4 |
5.6 |
2.3 |
3.1 |
3.3 |
||
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
18.6 |
19.8 |
22.0 |
32.3 |
30.5 |
29.7 |
28.1 |
26.4 |
Intangible Assets |
|
|
16.3 |
17.6 |
18.7 |
27.5 |
25.5 |
24.0 |
22.1 |
20.1 |
Tangible Assets |
|
|
2.4 |
2.2 |
2.3 |
3.2 |
3.2 |
3.8 |
4.2 |
4.5 |
Investments |
|
|
0.0 |
0.0 |
0.9 |
1.6 |
1.8 |
1.8 |
1.8 |
1.8 |
Current Assets |
|
|
66.8 |
60.0 |
54.6 |
62.5 |
67.2 |
69.1 |
71.0 |
73.7 |
Stocks |
|
|
20.2 |
21.6 |
21.1 |
30.4 |
30.0 |
30.5 |
30.6 |
31.9 |
Debtors |
|
|
23.0 |
18.5 |
18.5 |
19.7 |
26.5 |
27.8 |
29.6 |
31.1 |
Cash |
|
|
19.597 |
15.9 |
12.3 |
8.2 |
6.5 |
6.5 |
6.5 |
6.5 |
Current Liabilities |
|
|
(45.7) |
(42.9) |
(40.8) |
(50.7) |
(53.8) |
(58.6) |
(59.9) |
(60.5) |
Creditors |
|
|
(44.8) |
(42.3) |
(40.8) |
(47.6) |
(49.8) |
(49.8) |
(51.4) |
(52.8) |
Short term borrowings |
|
|
(0.953) |
(0.7) |
0.0 |
(3.1) |
(4.0) |
(8.8) |
(8.5) |
(7.7) |
Long Term Liabilities |
|
|
(23.3) |
(16.9) |
(13.2) |
(15.8) |
(12.3) |
(10.1) |
(9.2) |
(9.2) |
Long term borrowings |
|
|
0.0 |
0.0 |
0.0 |
(5.0) |
(5.0) |
(5.0) |
(5.0) |
(5.0) |
Other long term liabilities |
|
|
(23.3) |
(16.9) |
(13.2) |
(10.8) |
(7.3) |
(5.1) |
(4.2) |
(4.2) |
Net Assets |
|
|
16.4 |
20.1 |
22.5 |
28.3 |
31.6 |
30.1 |
30.0 |
30.5 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
(2.6) |
(0.1) |
2.4 |
(1.0) |
3.4 |
1.3 |
5.3 |
6.0 |
Net Interest |
|
|
(0.8) |
(0.5) |
(0.1) |
(0.2) |
(0.6) |
(0.8) |
(0.7) |
(0.6) |
Tax |
|
|
(0.2) |
(0.0) |
(0.3) |
(0.3) |
(0.9) |
(0.9) |
(0.4) |
(0.7) |
Capex |
|
|
(1.3) |
(1.4) |
(1.7) |
(2.5) |
(1.9) |
(2.7) |
(2.7) |
(2.7) |
Acquisitions/disposals |
|
|
(0.8) |
(1.4) |
(1.6) |
(7.9) |
(2.3) |
(0.5) |
0.0 |
0.0 |
Financing |
|
|
(0.0) |
0.0 |
(0.2) |
0.0 |
0.0 |
0.0 |
(0.0) |
0.0 |
Dividends |
|
|
0.0 |
0.0 |
(0.5) |
(0.8) |
(0.7) |
(1.3) |
(1.3) |
(1.3) |
Net Cash Flow |
|
|
(5.6) |
(3.3) |
(2.0) |
(12.6) |
(3.0) |
(4.8) |
0.3 |
0.8 |
Opening net debt/(cash) |
|
|
(23.0) |
(18.6) |
(15.2) |
(12.3) |
(0.2) |
2.5 |
7.3 |
7.0 |
HP finance leases initiated |
|
|
(0.0) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
|
|
1.3 |
(0.2) |
(0.9) |
0.5 |
0.3 |
0.0 |
0.0 |
0.0 |
Closing net debt/(cash) |
|
|
(18.6) |
(15.2) |
(12.3) |
(0.2) |
2.5 |
7.3 |
7.0 |
6.2 |
Source: WYG accounts, Edison Investment Research
|
|
Research: Healthcare
In September 2017, VolitionRx announced its European development plan for the Nu.Q™ colorectal cancer (CRC) frontline screening test. It will run two clinical trials (of 4,300 and 10,000 samples), which are expected to initiate in Q118 and Q218, respectively, supporting an expected CE mark and launch in Q318. VolitionRx is also participating in a three-year, 13,500-person US clinical trial including Nu.Q™ assays to support a US launch.