Creston — Update 18 April 2016

Creston — Update 18 April 2016

Creston

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Creston

Strong cash performance

Year-end trading update

Media

18 April 2016

Price

105.00p

Market cap

£62m

Net cash (£m) at 31 March 2016 expected

1.0

Shares in issue

58.7m

Free float

95.8%

Code

CRE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.5

(14.6)

(11.4)

Rel (local)

(1.5)

(21.2)

(2.1)

52-week high/low

162.00p

98.00p

Business description

Creston is an international marketing communications group delivering services including advertising, CRM, digital and direct marketing, health communications, local marketing, market research, PR and social media marketing to a broad spectrum of blue-chip global clients.

Next event

Preliminary results

8 June 2016

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

Creston is a research client of Edison Investment Research Limited

Creston’s brief year-end trading update indicates that FY16 revenue and earnings figures will be in line with indications given in January and our expectations. However, the cash performance is significantly better than we had anticipated at over £1m. FY17 should benefit from more focused recent attention to overhead management after the less consistent trading in H216, with no trading improvement currently factored in. The valuation remains at a significant discount to other smaller marketing agencies and the shares carry a premium yield on a well-covered dividend.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

74.9

9.6

11.8

3.9

8.9

3.7

03/15

76.9

10.0

13.1

4.2

8.0

4.0

03/16e

83.0

9.5

11.3

4.2

9.3

4.0

03/17e

85.0

10.5

12.4

4.4

8.5

4.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Unchanged forecasts

At the time of the January Q3 update, we brought our estimates back to reflect the trading environment, with client budgets and programmes being trimmed and/or delayed. For the new financial year just beginning, the impact should be offset by good momentum on new business wins, together with actions taken internally to realign the cost base within particular agencies. Creston has also indicated that there will be exceptional impairment charges on the carrying value of goodwill taken with the full figures in June. This new statement suggests that the client-side background is less volatile than it was in January, which in turn implies that unchanged forecasts should be looking like a ‘base case’.

Better cash performance

Our model had implied that there would be a small net debt position of £0.4m at the end of March, so for Creston to be pointing to a net cash figure of over £1m suggests a very strong working capital performance, given that there has been no change to earnings numbers.

Valuation: Significant discount

The combination of a lower share price and the better cash position means that Creston’s EV has reduced since our last note in January, increasing the discount to the agency sector on which the shares trade. Its valuation now stands at 5.6x CY15 EV/EBITDA, a 34% discount to the marketing services sector; a 32% discount a year further out. DBAY Advisors, represented on the board since February by Iain Ferguson (ex-Havas), has taken advantage of the lower price and increased its shareholding to 28.0%.

Exhibit 1: Financial summary

2014

2015

2016e

2017e

31-March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Sales

101,850

100,135

105,976

108,780

Cost of Sales

(26,972)

(23,257)

(22,976)

(23,780)

Revenue

 

 

74,878

76,878

83,000

85,000

EBITDA

 

 

11,423

11,672

11,272

12,202

Operating Profit (before amort. and except.)

 

9,766

10,181

9,760

10,752

Intangible Amortisation

(60)

0

(612)

(612)

Goodwill impairment, restructuring

(2,353)

0

(2,140)

0

Acquisition, start-up & restructuring costs less movement in fair value of deferred consideration

0

(384)

0

0

Operating Profit

7,353

9,797

7,008

10,140

Net Interest

(149)

(174)

(260)

(252)

Profit Before Tax (norm)

 

 

9,617

10,007

9,500

10,500

Tax

(2,410)

(2,232)

(2,222)

(2,415)

Profit After Tax (norm)

7,648

7,792

7,278

8,085

Profit After Tax (FRS 3)

4,794

7,392

4,526

7,473

Average Number of Shares Outstanding (m)

60.0

58.7

58.7

58.7

EPS - normalised fully diluted (p)

 

 

11.8

13.1

11.3

12.4

EPS - (IFRS) (p)

 

 

7.8

12.4

6.6

11.4

Dividend per share (p)

3.9

4.2

4.2

4.4

Gross Margin (%)

73.5

76.8

78.3

78.1

EBITDA Margin (%)

15.3

15.2

13.6

14.4

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

13.0

13.2

11.8

12.6

BALANCE SHEET

Fixed Assets

 

 

110,591

111,763

115,507

114,333

Intangible Assets

104,985

106,637

110,411

109,799

Tangible Assets

5,606

5,126

5,096

4,534

Investments

0

0

0

0

Current Assets

 

 

37,305

37,508

33,404

37,625

Stocks

905

1,001

1,092

1,179

Debtors

28,948

28,195

30,745

33,217

Cash

7,452

8,312

1,568

3,228

Other

0

0

0

0

Current Liabilities

 

 

(29,666)

(28,271)

(32,088)

(30,441)

Creditors

(29,666)

(28,271)

(30,088)

(29,191)

Short term borrowings

0

0

(2,000)

(1,250)

Long Term Liabilities

 

 

(5,672)

(3,727)

(4,150)

(4,150)

Long term borrowings

0

0

0

0

Other long term liabilities

(5,672)

(3,727)

(4,150)

(4,150)

Net Assets

 

 

112,558

117,273

112,673

117,366

CASH FLOW

Operating Cash Flow

 

 

7,517

8,647

8,500

8,900

Net Interest

(112)

(190)

(260)

(252)

Tax

(2,647)

(2,003)

(2,217)

(2,270)

Capex

(1,665)

(961)

(950)

(1,100)

Acquisitions/disposals

0

0

(11,323)

(334)

Financing

(4,711)

(1,752)

0

0

Dividends

(2,381)

(2,491)

(2,494)

(2,534)

Net Cash Flow

(3,999)

1,250

(8,744)

2,410

Opening net debt/(cash)

 

 

(11,198)

(7,452)

(8,312)

432

HP finance leases initiated

0

0

0

0

Other

253

(390)

0

0

Closing net debt/(cash)

 

 

(7,452)

(8,312)

432

(1,978)

Source: Company accounts, Edison Investment Research

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NetDimensions (Holdings) — Update 18 April 2016

NetDimensions (Holdings)

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