An in line AGM update is to be welcomed after a tough trading year in FY19. Market conditions have yet to show any marked improvement, but UK cost savings and some international progress support our existing estimates. The new management team expects to deliver a strategy update in the Autumn and this should provide insight regarding future growth prospects. The rating has increased in recent months though FY20 should represent trough earnings in our view.
Written by
Toby Thorrington
Walker Greenbank |
Year to date trading as expected |
AGM update |
Care & household goods |
20 June 2019 |
Share price performance
Business description
Next events
Analyst
Walker Greenbank is a research client of Edison Investment Research Limited |
An in line AGM update is to be welcomed after a tough trading year in FY19. Market conditions have yet to show any marked improvement, but UK cost savings and some international progress support our existing estimates. The new management team expects to deliver a strategy update in the Autumn and this should provide insight regarding future growth prospects. The rating has increased in recent months though FY20 should represent trough earnings in our view.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/18** |
112.2 |
12.7 |
14.7 |
4.4 |
5.5 |
5.5 |
01/19 |
113.3 |
9.5 |
10.8 |
3.2 |
7.4 |
4.1 |
01/20e |
109.3 |
7.3 |
8.4 |
2.5 |
9.5 |
3.1 |
01/21e |
111.8 |
7.8 |
9.0 |
2.7 |
8.9 |
3.4 |
Note: *PBT and EPS (fully diluted) are normalised, excluding exceptional items and LTIP charges. **Restated for IFRS 15.
Mixed trading patterns continue
AGM comments indicate that trading patterns in the first four months of the year have been similar to those seen in FY19, in line with management expectations. Implicitly, UK Brands sales are still tracking below prior year levels though perhaps to a lesser degree, while a previously flagged US customer disruption for Clarke & Clarke had led to a small sales decline in the territory thus far. Other international markets overall are showing progress. The company’s manufacturing operations meet virtually all of the Brands division’s wallpaper and approaching half of its fabric requirements (apart from Clarke & Clarke) as well as selling to third parties, though no specific reference was made to performance here.
Strategy update expected later in the year
We are reminded that a strategy review led by the new CEO is in process, with management expecting to update the market in autumn this year, which may or may not coincide with the H120 results. An ungeared balance sheet provides headroom to selectively invest in the business while also being mindful of the need to restart earnings growth. Refined brand and geographic strategies and development of adjacent lines (eg licensing, finished goods, paint) are all potential areas that could help to reinvigorate revenue momentum in our view.
Valuation: Rating starting to rebuild
The share price recovery that started following the FY19 results has continued and it is now only c 6% below start year levels. With no change to our estimates since we last wrote (see April update note), the company’s rating has rebuilt somewhat to a P/E of 9.5x and an EV/EBITDA (adjusted for pensions cash) of 6.0x for the current year, noting that we expect FY20 to be the trough from an earnings perspective. The previously noted discount to NAV has narrowed considerably to just 7% now on the last reported balance sheet.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2018R |
2019 |
2020e |
2021e |
2022e |
|||
Year end January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
75.7 |
78.4 |
83.4 |
87.8 |
92.4 |
108.8 |
112.2 |
113.3 |
109.3 |
111.8 |
114.5 |
|
Cost of Sales |
|
|
(30.2) |
(30.3) |
(32.7) |
(35.9) |
(36.2) |
(43.3) |
(44.0) |
(45.3) |
(44.8) |
(45.9) |
(46.9) |
|
Gross Profit |
|
|
45.5 |
48.1 |
50.7 |
52.0 |
56.2 |
65.5 |
68.2 |
68.0 |
64.5 |
66.0 |
67.5 |
|
EBITDA |
|
|
8.6 |
9.7 |
10.7 |
11.8 |
13.4 |
15.9 |
16.1 |
13.3 |
11.3 |
11.8 |
12.0 |
|
Operating Profit (before GW, except. & LTIP) |
6.6 |
7.5 |
8.3 |
9.1 |
10.6 |
12.8 |
13.0 |
9.8 |
7.6 |
8.0 |
8.1 |
|||
Operating Profit (before GW and except.) - reported |
5.8 |
6.5 |
7.3 |
8.2 |
9.8 |
12.4 |
12.6 |
10.4 |
7.6 |
7.4 |
7.5 |
|||
Net Interest |
|
|
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
(0.2) |
|
Intangible Amort – acquired |
|
|
0 |
0 |
0 |
0 |
(0.3) |
(1.0) |
(1.0) |
(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) |
(0.7) |
(0.7) |
(0.7) |
|||
Exceptionals |
|
|
0 |
0 |
0 |
0 |
(1.8) |
2.3 |
2.3 |
(2.2) |
(0.5) |
0.0 |
0.0 |
|
Other |
|
|
0 |
0 |
0 |
0 |
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 |
12.7 |
9.5 |
7.3 |
7.8 |
7.9 |
|
Profit Before Tax (statutory) |
|
|
4.9 |
5.5 |
6.3 |
7.3 |
7.0 |
12.8 |
13.0 |
6.3 |
5.1 |
5.5 |
5.6 |
|
Tax |
|
|
(1.0) |
(0.5) |
(1.2) |
(1.5) |
(1.6) |
(1.0) |
(1.1) |
(1.2) |
(1.4) |
(1.4) |
(1.4) |
|
Profit After Tax (norm) |
|
|
5.4 |
6.6 |
6.9 |
7.5 |
8.6 |
11.5 |
10.4 |
7.7 |
6.0 |
6.4 |
6.5 |
|
Profit After Tax (statutory) |
|
4.0 |
5.0 |
5.1 |
5.9 |
5.4 |
11.8 |
11.9 |
5.1 |
3.7 |
4.1 |
4.2 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding (m) |
57.5 |
58.5 |
59.3 |
60.0 |
62.7 |
70.4 |
70.4 |
71.0 |
71.0 |
71.0 |
71.0 |
|||
EPS - normalised (p) FD |
|
|
9.4 |
10.7 |
11.2 |
11.6 |
12.9 |
14.43 |
14.68 |
10.8 |
8.4 |
9.0 |
9.2 |
|
EPS - statutory (p) |
|
|
6.9 |
8.6 |
8.6 |
9.8 |
8.6 |
16.70 |
16.95 |
7.2 |
5.3 |
5.8 |
5.9 |
|
Dividend per share (p) |
|
|
1.5 |
1.9 |
2.3 |
2.9 |
3.6 |
4.4 |
4.4 |
3.2 |
2.5 |
2.7 |
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
60.1 |
61.3 |
60.8 |
59.2 |
60.8 |
60.2 |
60.8 |
60.0 |
59.0 |
59.0 |
59.0 |
|
EBITDA Margin (%) |
|
|
11.4 |
12.4 |
12.8 |
13.4 |
14.6 |
14.6 |
14.3 |
11.7 |
10.3 |
10.5 |
10.5 |
|
Operating Margin (before GW and except.) (%) |
7.7 |
8.3 |
8.8 |
9.3 |
10.7 |
11.4 |
11.2 |
9.2 |
7.0 |
6.6 |
6.6 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
18.5 |
21.1 |
21.5 |
18.9 |
47.5 |
47.7 |
47.7 |
46.0 |
44.4 |
42.6 |
40.7 |
|
Intangible Assets |
|
|
6.7 |
7.3 |
7.2 |
7.1 |
31.6 |
31.8 |
31.8 |
30.8 |
29.6 |
28.5 |
27.3 |
|
Tangible Assets |
|
|
9.8 |
11.7 |
12.7 |
11.7 |
15.8 |
16.0 |
16.0 |
15.2 |
14.7 |
14.1 |
13.5 |
|
Investments |
|
|
2.0 |
2.2 |
1.6 |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Current Assets |
|
|
32.6 |
35.3 |
37.1 |
40.3 |
51.3 |
51.9 |
52.1 |
49.3 |
50.9 |
53.7 |
56.6 |
|
Stocks |
|
|
16.8 |
18.4 |
22.0 |
18.1 |
30.3 |
29.4 |
29.5 |
28.0 |
27.7 |
28.4 |
29.0 |
|
Debtors |
|
|
12.8 |
13.9 |
14.1 |
19.3 |
19.5 |
21.2 |
21.3 |
18.9 |
19.3 |
19.6 |
19.9 |
|
Cash |
|
|
2.9 |
2.8 |
1.0 |
2.9 |
1.5 |
1.3 |
1.3 |
2.4 |
3.9 |
5.8 |
7.6 |
|
Other |
|
|
0.1 |
0.2 |
0.0 |
0.0 |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
(17.3) |
(19.4) |
(20.7) |
(19.4) |
(34.8) |
(28.9) |
(28.9) |
(23.8) |
(24.4) |
(25.3) |
(26.3) |
|
Creditors |
|
|
(16.9) |
(19.0) |
(20.3) |
(19.0) |
(28.0) |
(22.4) |
(22.4) |
(21.8) |
(22.4) |
(23.3) |
(24.3) |
|
Short term borrowings |
|
|
(0.4) |
(0.4) |
(0.4) |
(0.4) |
(6.8) |
(6.6) |
(6.6) |
(2.0) |
(2.0) |
(2.0) |
(2.0) |
|
Long Term Liabilities |
|
|
(9.6) |
(10.2) |
(10.9) |
(4.5) |
(12.7) |
(9.1) |
(9.1) |
(10.6) |
(8.5) |
(6.3) |
(4.0) |
|
Long term borrowings |
|
|
(1.4) |
(0.9) |
(0.6) |
(0.2) |
0.0 |
0.0 |
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) |
(9.1) |
(10.6) |
(8.5) |
(6.3) |
(4.0) |
|||
Net Assets |
|
|
24.2 |
26.9 |
26.9 |
35.3 |
51.3 |
61.6 |
61.8 |
60.9 |
62.4 |
64.7 |
67.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
6.0 |
6.2 |
3.5 |
7.1 |
12.4 |
7.0 |
7.0 |
12.6 |
8.3 |
8.3 |
8.4 |
|
Net Interest |
|
|
(0.2) |
(0.2) |
(0.2) |
(0.1) |
(0.2) |
(0.2) |
(0.2) |
(0.3) |
(0.3) |
(0.2) |
(0.2) |
|
Tax |
|
|
(0.0) |
(0.0) |
(0.0) |
(0.6) |
(2.3) |
(2.2) |
(2.2) |
(0.8) |
(1.4) |
(1.4) |
(1.4) |
|
Capex |
|
|
(3.1) |
(4.7) |
(3.2) |
(2.5) |
(6.7) |
(3.5) |
(3.5) |
(2.8) |
(3.0) |
(3.0) |
(3.0) |
|
Acquisitions/disposals |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
(27.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Financing |
|
|
(0.1) |
(0.0) |
(0.4) |
(0.1) |
18.3 |
1.8 |
1.8 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Dividends |
|
|
(0.7) |
(0.9) |
(1.1) |
(1.4) |
(1.8) |
(2.7) |
(2.7) |
(3.1) |
(2.2) |
(1.8) |
(1.9) |
|
Net Cash Flow |
|
|
1.8 |
0.3 |
(1.5) |
2.3 |
(7.4) |
0.1 |
0.1 |
5.7 |
1.5 |
1.9 |
1.8 |
|
Opening net debt/(cash) |
0.7 |
(1.2) |
(1.5) |
(0.0) |
(2.3) |
5.3 |
5.3 |
5.3 |
(0.4) |
(1.9) |
(3.8) |
|||
HP finance leases initiated |
0.0 |
0.0 |
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) |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
|
Closing net debt/(cash) |
|
|
(1.2) |
(1.5) |
(0.0) |
(2.3) |
5.3 |
5.3 |
5.3 |
(0.4) |
(1.9) |
(3.8) |
(5.7) |
Source: Walker Greenbank, Edison Investment Research. Note: 2018 results restated for IFRS 15 ‘Revenue from Contracts with Customers’; the primary P&L effects were to reclassify some marketing materials/services as net other income and carriage recoveries to revenue and, as they were previously netted out of distribution costs previously, increase this cost line.
|
|
For the purposes of the Takeover Code, Edison Investment Research is deemed to be connected with BCA Marketplace. Under Rule 20.1 Edison must not include any profit forecast, quantified financial benefits statement, asset valuation or estimate of other figures key to the offer, except to the extent that such forecasts, statements, valuations or estimates have been published prior to the offer period (as defined in the Takeover Code) by an offeror or the offeree company (as appropriate) in accordance with the requirements of the Code.
Consequently we have removed our estimates until the Offer Period ends.
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