Park Group — Trading in line and implementing strategic plan

Appreciate Group (LN: APP)

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27.80

0.00 (0.00%)

Market capitalisation

52m

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Research: Financials

Park Group — Trading in line and implementing strategic plan

Park Group’s AGM statement says that trading in the first five months of the current financial year has been in line with management expectations and provides an update on implementation of the strategic business plan aimed at boosting medium-term growth. Shareholders also approved changing the name of the group to Appreciate Group, which the board believes will better reflect the company’s product and market position as an innovative payments, savings and rewards provider.

Martyn King

Written by

Martyn King

Director, Financials

Financials

Park Group

Trading in line and implementing strategic plan

AGM and name change

Financial services

25 September 2019

Price

54p

Market cap

£101m

Net cash (£m) at 31 March 2019 (net of overdraft)

34.6

Shares in issue

186.3m

Free float

100%

Code

PKG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.2)

(21.2)

(19.7)

Rel (local)

(11.8)

(20.4)

(17.7)

52-week high/low

80.0p

52.5p

Business description

Park 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

Interim results

26 November 2019

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Park Group is a research client of Edison Investment Research Limited

Park Group’s AGM statement says that trading in the first five months of the current financial year has been in line with management expectations and provides an update on implementation of the strategic business plan aimed at boosting medium-term growth. Shareholders also approved changing the name of the group to Appreciate Group, which the board believes will better reflect the company’s product and market position as an innovative payments, savings and rewards provider.

Year end

Billings*
(£m)

Revenue
(£m)

Adj. PBT**
(£m)

EPS***
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/18

412.8

111.1

12.6

5.5

3.05

9.9

5.6

03/19

426.9

110.4

12.5

4.8

3.20

11.3

5.9

03/20e

442.5

113.8

11.8

5.1

3.20

10.6

5.9

03/21e

462.5

117.5

13.3

5.8

3.35

9.4

6.2

Note: *Billings is a non-statutory measure of sales defined as the face value of voucher sales and the amount of value loaded onto prepaid cards, less any discount given to customers. **PBT is adjusted for exceptional items. ***EPS is fully diluted on a statutory basis.

Trading in line with expectations

Trading in the current year is in line with previous guidance, with continued growth in the corporate business and a stable performance in the Christmas savings market. We are making no changes to the estimates set out in our July 2019 report, which look for further billings growth but for the net investment costs related to the implementation of the strategic business plan to negatively affect FY20e PBT by a net c £2.0m. Our FY21 forecast includes reduced net investment costs and further top-line growth, but does not capture the medium-term strategic business plan benefits. Management targets P&L benefits of £2–5m pa after FY21.

Investing for faster medium-term growth

The AGM was held at the group’s new offices in Chapel Street, in the centre of Liverpool, to which the group relocated its core operations last week. The move to ‘fit for purpose’ new offices is one element in the strategic plan, which aims to build existing strengths and market positioning to accelerate growth and improve efficiency by enhancing its products, providing product and branding clarity, and investing in its core infrastructure with a particular focus on increased digitalisation. Park says it is making good progress on rationalising its brand architecture and implementing its technology upgrades, and that work on the planned new digitally optimised product, targeting currently untapped areas of the gift voucher market, is showing encouraging progress. A further update on the product as well as a launch date will be provided later in the year.

Valuation: Attractive yield and medium-term growth

Our modified DCF valuation, incorporating a two-stage, long-term growth assumption to capture the benefits of the strategic investment, is unchanged at 90p. With near-term earnings suppressed by investment spend, the implied CY20e P/E at 90p is 18.0x and CY21e 16.2x, which we believe is reasonable in a peer group context.

Exhibit 1: Financial summary

Year end 31 March

£'000s

2015

2016

2017

2018

2019

2020e

2021e

PROFIT & LOSS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Consumer billings

196,796

208,352

216,771

232,635

232,096

232,185

235,562

Corporate billings

176,091

176,679

187,741

180,151

194,805

210,275

226,977

Total Billings

 

372,887

385,031

404,512

412,786

426,901

442,460

462,539

Revenue

 

85,769

100,556

119,637

111,054

110,394

113,802

117,544

Cost of sales

(59,193)

(72,030)

(89,944)

(79,628)

(79,117)

(80,427)

(82,435)

Gross profit

26,576

28,526

29,693

31,426

31,277

33,375

35,108

Gross margin as % billings

7.1%

7.4%

7.3%

7.6%

7.3%

7.5%

7.6%

Distribution costs

(2,761)

(2,909)

(2,940)

(3,002)

(2,934)

(3,009)

(3,099)

Administrative expenses excluding depreciation & amortisation

(14,914)

(15,176)

(16,348)

(15,702)

(16,007)

(18,970)

(18,470)

EBITDA

 

8,901

10,441

10,405

12,722

12,336

11,396

13,539

Depreciation & amortisation

0

0

0

(1,405)

(1,394)

(1,230)

(1,930)

Operating profit before exceptional items

 

8,901

10,441

10,405

11,317

10,942

10,166

11,609

Exceptional items

0

0

0

0

(1,210)

0

0

Operating profit

 

8,901

10,441

10,405

11,317

9,732

10,166

11,609

Net Interest

1,245

1,457

1,470

1,270

1,572

1,616

1,690

Profit Before Tax & exceptional items

 

10,146

11,898

11,875

12,587

12,514

11,782

13,299

Profit before tax

 

10,146

11,898

11,875

12,587

11,304

11,782

13,299

Tax

(2,284)

(2,177)

(2,361)

(2,398)

(2,422)

(2,239)

(2,527)

Profit after tax (IFRS)

 

7,862

9,721

9,514

10,189

8,882

9,543

10,772

Average number of shares (m)

182.5

183.7

183.9

185.3

186.0

186.3

186.3

Fully diluted average number of shares (m)

184.7

187.2

187.2

185.9

186.1

187.3

187.3

Basic EPS - IFRS (p)

 

4.3

5.3

5.2

5.5

4.8

5.1

5.8

Fully diluted EPS - IFRS (p)

 

4.3

5.2

5.1

5.5

4.8

5.1

5.8

Dividend per share (p)

2.40

2.75

2.90

3.05

3.20

3.20

3.35

Pay-out ratio

55.7%

52.0%

56.1%

55.4%

67.0%

62.5%

58.0%

BALANCE SHEET

Non-current assets

 

13,924

13,749

14,399

14,868

12,606

16,626

11,396

Goodwill

1,320

1,320

2,202

2,185

2,168

2,168

2,168

Other intangible assets

3,168

3,036

2,682

2,278

2,295

5,195

5,395

Property, plant, & equipment

8,143

8,003

7,688

7,684

6,216

7,336

1,906

Retirement benefit asset

1,293

1,390

1,827

2,721

1,927

1,927

1,927

Other non-current assets

0

0

0

0

0

0

0

Current assets

 

107,095

119,496

129,322

142,423

153,475

157,942

173,928

Inventories

3,186

2,182

2,632

3,808

4,574

4,737

4,905

Trade & other receivables

11,309

8,860

9,236

10,917

12,582

13,274

13,876

Monies held in trust

65,728

75,219

83,018

86,992

99,251

106,211

112,857

Cash & equivalents

26,333

32,735

34,236

40,311

36,868

33,520

42,089

Other current assets

539

500

200

395

200

200

200

Current liabilities

 

(121,545)

(128,164)

(133,789)

(142,604)

(148,818)

(153,725)

(159,765)

Trade & other payables

(77,688)

(83,135)

(87,201)

(94,592)

(89,952)

(92,917)

(96,208)

Tax payable

(671)

(262)

(424)

0

(580)

(580)

(580)

Provisions

(43,186)

(44,767)

(46,164)

(48,012)

(58,286)

(60,228)

(62,976)

Non-current liabilities

 

(2,907)

(1,881)

(1,118)

(662)

(553)

(553)

(553)

Deferred tax liability

(273)

(181)

(194)

(662)

(553)

(553)

(553)

Retirement benefit obligation

(2,634)

(1,700)

(924)

0

0

0

0

Net assets

 

(3,433)

3,200

8,814

14,025

16,710

20,290

25,006

Minorities

0

0

0

0

0

0

0

Shareholders' equity

 

(3,433)

3,200

8,814

14,025

16,710

20,290

25,006

CASH FLOW

Operating Cash Flow

14,106

12,184

9,603

10,540

6,874

8,488

12,162

Net interest

1,176

1,339

1,539

1,267

1,497

1,616

1,690

Tax paid

(2,132)

(2,490)

(2,258)

(2,537)

(1,576)

(2,239)

(2,527)

Capex

(597)

(1,126)

(717)

(1,020)

(1,152)

(5,250)

(1,700)

Acquisitions/disposals

41

52

(875)

1

0

0

5,000

Dividends paid

(4,198)

(4,380)

(5,052)

(5,370)

(5,668)

(5,963)

(6,056)

Other

0

0

305

0

345

0

0

Net cash flow

8,396

5,579

2,545

2,881

320

(3,348)

8,569

Opening net (debt)/cash

14,842

23,238

28,817

31,362

34,243

34,563

31,215

Closing net (debt)/cash

 

23,238

28,817

31,362

34,243

34,563

31,215

39,784

Overdraft

3,095

3,918

2,874

6,068

2,305

2,305

2,305

Closing net (debt)/cash as per balance sheet

 

26,333

32,735

34,236

40,311

36,868

33,520

42,089

Source: Park Group, Edison Investment Research


General disclaimer and copyright

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

1,185 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 Park Group and prepared and issued by Edison, in consideration of a fee payable by Park 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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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