Walker Greenbank
Written by
Walker Greenbank |
Covered by insurance |
Lancaster floods |
Care & household goods |
16 December 2016 |
Share price performance
Business description
Next event
Analysts
Walker Greenbank is a research client of Edison Investment Research Limited |
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We consider the share price reaction (-7%) to the likely flood impact to be overdone. Losses are fully insured, with estimate reductions indicated to be recoverable when the claim is settled. With a negligible anticipated long-term impact, the weakness represents a buying opportunity.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/14 |
78.4 |
7.33 |
10.66 |
1.85 |
18.9 |
0.9 |
01/15 |
83.4 |
8.13 |
11.20 |
2.31 |
18.0 |
1.1 |
01/16e |
86.5 |
7.40 |
10.13 |
2.70 |
19.9 |
1.3 |
01/17e |
90.0 |
7.50 |
10.21 |
2.90 |
19.7 |
1.4 |
Note: *PBT and EPS (diluted) are normalised, excluding intangible amortisation, exceptional items, share-based payments and defined benefit pension contributions.
Fabric printing disrupted
Severe flooding has caused considerable damage and halted production at the group’s fabric printing factory. On present indications, digital printing will begin early in 2016, with a progressive restoration leading towards full production by April. The factory is responsible for the entire group requirement for printed fabrics and also supplies more than half its revenue to third-party customers, including many of the group brands’ leading competitors. At the interim stage of the current year, its revenues were up by 18% to £9.6m, with a substantial, but unspecified, increase in profit. The second half will have started well, with production running at peak levels over the September/November period to meet autumn and Christmas demand.
Estimates reduced, but outlook undiminished
Management indicates that flood damage and business disruption costs are fully covered by insurance; however, current year pre-tax profits are now indicated to be 15% below market estimates. The year to January 2017 will also be affected – we have tentatively adjusted our estimate by £1.9m. We understand that the shortfalls should be reimbursed (presumably as an exceptional item) when the insurance claim has been agreed. Post 2017, the long-term impact should not be material. Near term, the 2015 key selling period is been largely complete, reducing the impact of customer disappointment, while the lack of suitable UK competition will make it more difficult for third-party customers to re-source their product.
Balance sheet remains strong
The group balance sheet is well-equipped to withstand the impact. At January 2016, inventories may be lower than originally planned, but cash flow will also be lower and the group will almost certainly incur costs, which will not be recoverable until the following year. We now look for modest net funds at January 2016.
Valuation: Sector rating
With the exception of Burberry (cautious trading statement) members of Walker Greenbank's peer group have edged higher since our outlook report in October. A modest premium on the basis of calendar 2016 earnings (16.2-15.8x) reflects a balance between the strong medium-term outlook and the immediate difficulties.
Exhibit 1: Financial summary
£'000s |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
74,014 |
75,725 |
78,434 |
83,373 |
86,500 |
90,000 |
Cost of Sales |
(30,029) |
(30,193) |
(30,347) |
(32,674) |
(33,899) |
(35,271) |
||
Gross Profit |
43,985 |
45,532 |
48,087 |
50,699 |
52,601 |
54,729 |
||
EBITDA |
|
|
7,822 |
8,625 |
9,730 |
10,689 |
10,300 |
10,550 |
Operating Profit (before amort. and except.) |
5,969 |
6,577 |
7,513 |
8,340 |
7,600 |
7,700 |
||
Intangibles Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||
LTIP / Exceptionals |
(414) |
(746) |
(970) |
(1,005) |
(900) |
(900) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
5,555 |
5,831 |
6,543 |
7,335 |
6,700 |
6,800 |
||
Net Interest |
(661) |
(897) |
(1,048) |
(1,006) |
(1,100) |
(1,100) |
||
Net defined benefit pension charge |
407 |
704 |
868 |
798 |
900 |
900 |
||
Profit Before Tax (norm) |
|
|
5,715 |
6,384 |
7,333 |
8,132 |
7,400 |
7,500 |
Profit Before Tax (FRS 3) |
|
|
4,894 |
4,934 |
5,495 |
6,329 |
5,600 |
5,700 |
Tax |
(1,065) |
(972) |
(451) |
(1,224) |
(1,200) |
(1,250) |
||
Profit After Tax (norm) |
4,115 |
5,412 |
6,606 |
6,908 |
6,200 |
6,250 |
||
Profit After Tax (FRS 3) |
3,829 |
3,962 |
5,044 |
5,105 |
4,400 |
4,450 |
||
Average Number of Shares Outstanding (m) |
56.7 |
57.5 |
58.5 |
59.3 |
59.8 |
59.8 |
||
EPS - normalised (p) |
|
|
7.26 |
9.41 |
11.30 |
11.64 |
10.36 |
10.45 |
EPS - normalised and fully diluted (p) |
|
7.26 |
9.41 |
10.66 |
11.20 |
10.13 |
10.21 |
|
EPS - FRS 3 (p) |
|
|
6.76 |
6.89 |
8.63 |
8.60 |
7.36 |
7.44 |
Dividend per share (p) |
1.20 |
1.48 |
1.85 |
2.31 |
2.70 |
2.90 |
||
Gross Margin (%) |
59.4 |
60.1 |
61.3 |
60.8 |
60.8 |
60.8 |
||
EBITDA Margin (%) |
10.6 |
11.4 |
12.4 |
12.8 |
11.9 |
11.7 |
||
Operating Margin (before GW and except.) (%) |
8.1 |
8.7 |
9.6 |
10.0 |
8.8 |
8.6 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
18,274 |
18,506 |
21,142 |
21,463 |
21,613 |
21,701 |
Intangible Assets |
6,111 |
6,683 |
7,289 |
7,158 |
7,108 |
7,058 |
||
Tangible Assets |
9,313 |
9,808 |
11,690 |
12,714 |
13,014 |
13,164 |
||
Deferred income tax assets |
2,850 |
2,015 |
2,163 |
1,591 |
1,491 |
1,479 |
||
Current Assets |
|
|
32,298 |
32,618 |
35,295 |
37,105 |
41,213 |
45,409 |
Stocks |
17,000 |
16,825 |
18,428 |
22,004 |
22,729 |
25,149 |
||
Debtors |
13,047 |
12,810 |
13,884 |
14,130 |
16,660 |
18,034 |
||
Cash |
2,197 |
2,920 |
2,830 |
971 |
1,824 |
2,226 |
||
Other |
54 |
63 |
153 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(17,961) |
(17,340) |
(19,435) |
(20,710) |
(20,872) |
(21,700) |
Creditors |
(17,561) |
(16,940) |
(19,035) |
(20,310) |
(20,472) |
(21,300) |
||
Short term borrowings |
(400) |
(400) |
(400) |
(400) |
(400) |
(400) |
||
Long Term Liabilities |
|
|
(9,559) |
(9,602) |
(10,150) |
(10,921) |
(11,750) |
(12,250) |
Long term borrowings |
(2,464) |
(1,364) |
(942) |
(569) |
(1,000) |
(1,000) |
||
Other long term liabilities |
(7,095) |
(8,238) |
(9,208) |
(10,352) |
(10,750) |
(11,250) |
||
Net Assets |
|
|
23,052 |
24,182 |
26,852 |
26,937 |
30,204 |
33,160 |
CASH FLOW |
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Operating Cash Flow |
|
|
4,530 |
6,023 |
6,165 |
3,468 |
6,809 |
7,085 |
Net Interest |
(230) |
(209) |
(152) |
(181) |
(200) |
(200) |
||
Tax |
(18) |
(16) |
(18) |
(32) |
(1,100) |
(1,238) |
||
Capex |
(2,538) |
(3,119) |
(4,735) |
(3,230) |
(3,500) |
(3,500) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
||
Financing |
(24) |
(145) |
(28) |
(367) |
(50) |
(50) |
||
Dividends |
(570) |
(711) |
(900) |
(1,144) |
(1,537) |
(1,694) |
||
Net Cash Flow |
1,150 |
1,823 |
332 |
(1,486) |
422 |
403 |
||
Opening net debt/(cash) |
|
|
1,817 |
667 |
(1,156) |
(1,488) |
(2) |
(424) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
667 |
(1,156) |
(1,488) |
(2) |
(424) |
(826) |
Source: Company accounts, Edison Investment Research
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