Walker Greenbank — Management expectations met

Walker Greenbank — Management expectations met

FY18 closed in line with management expectations showing good top-line progress overall despite some UK market variability. The latter appears to have affected sentiment – as reflected in single-digit prospective P/E multiples – but there are positive mix effects also that should not be overlooked. A rising dividend provides an additional attraction.

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Written by

Walker Greenbank

Management expectations met

Year-end update

Care & household goods

7 February 2018

Price

132.5p

Market cap

£94m

Net debt (£m) at end July 2017

5.2

Shares in issue

70.9m

Free float

92%

Code

WGB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.3)

(39.9)

(34.6)

Rel (local)

3.5

(36.4)

(35.0)

52-week high/low

241.5p

121.5p

Business description

Walker Greenbank is a luxury interior furnishings group combining specialist design skills with high-quality upstream manufacturing facilities. Leading brands include Harlequin, Sanderson, Morris & Co, Scion, Anthology, Zoffany and Clarke & Clarke.

Next events

FY18 results

5 April 2018

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Walker Greenbank is a research client of Edison Investment Research Limited

FY18 closed in line with management expectations showing good top-line progress overall despite some UK market variability. The latter appears to have affected sentiment – as reflected in single-digit prospective P/E multiples – but there are positive mix effects also that should not be overlooked. A rising dividend provides an additional attraction.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/16

87.8

8.9

11.6

2.9

11.4

2.2

01/17

92.4

10.4

12.9

3.6

10.3

2.7

01/18e

108.9

12.4

14.0

4.5

9.5

3.4

01/19e

115.2

13.9

15.6

5.6

8.5

4.2

Note: *PBT and EPS (FD) are normalised, excluding exceptional items and LTIP charges.

Progress evident, although UK weak at year end

As previously noted, some UK market variability was seen towards the end of FY18 but, in overall terms, both divisions made good y-o-y revenue and, we expect, profit progress. In constant currency, international Brands sales grew (+1.6% organic, +18.9% including Clarke & Clarke) and favourable FX effects boosted this progress in sterling terms. Clarke & Clarke’s positive full year contribution is underpinned by ongoing underlying growth while Licensing income (+21.2% y-o-y) continues to develop and contribute usefully to profitability. Manufacturing has recovered well from a flood-affected prior year and the fire-affected line at Anstey is in the process of being restored to operation. Underlying conditions for the important premium UK Brands activities remain difficult to read and Q4’s trading softness is reflected in 6.1% lower segment revenue for the year as a whole.

Estimates now reflect short-term Anstey disruption

The year-end update contained no substantive commentary on market conditions and in their absence we assume that they remain similar to previous reports, with more favourable international conditions and a relatively challenging domestic market. Our only change of note to estimates is an explicit adjustment for the Anstey fire (moving c £1m revenue and c £0.5m EBIT from FY18 into FY19 as the affected machine comes back on line and catches up the associated sales). Otherwise, we made a minor revision to other underlying revenue based on FY18 run rates with profitability unchanged.

Valuation: Discounting weak markets?

While Walker Greenbank’s share price is above December lows, it has not made any meaningful recovery from a sharp decline following the 15 November update. The c 36% fall between then and now compares to underlying downgrades of 12% for FY19 (excluding the Anstey adjustment) and 7% for FY20, so there has clearly been a significant de-rating during this period. The FY18 (effectively now historic) P/E is now below 10x with EV/EBITDA just above 6x, reducing further beyond this on our estimates. We acknowledge that consumer-facing stocks are experiencing weak sentiment currently, but investors should not lose sight of the company’s leading market and strong financial positions.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2018e

2019e

2020e

January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

75.7

78.4

83.4

87.8

92.4

108.9

115.2

119.7

Cost of Sales

 

 

(30.2)

(30.3)

(32.7)

(35.9)

(36.2)

(43.6)

(46.1)

(47.9)

Gross Profit

 

 

45.5

48.1

50.7

52.0

56.2

65.3

69.1

71.8

EBITDA

 

 

8.6

9.7

10.7

11.8

13.4

16.1

17.8

19.0

Operating Profit (before GW, except. & LTIP)

6.6

7.5

8.3

9.1

10.6

12.7

14.1

15.0

Operating Profit (before GW and except.) - reported

5.8

6.5

7.3

8.2

9.8

11.7

13.1

14.0

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.3)

(0.2)

(0.1)

Intangible Amortisation - acquired

 

 

0

0

0

0

(0.3)

(1.1)

(1.1)

(1.1)

Pension net finance charge

(0.7)

(0.9)

(0.8)

(0.7)

(0.5)

(0.7)

(0.7)

(0.7)

Exceptionals

 

 

0

0

0

0

(1.8)

(0.5)

0.0

0.0

Other

 

 

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

12.4

13.9

14.9

Profit Before Tax (FRS 3)

 

 

4.9

5.5

6.3

7.3

7.0

9.2

11.2

12.2

Tax

 

 

(1.0)

(0.5)

(1.2)

(1.5)

(1.6)

(2.2)

(2.5)

(2.5)

Profit After Tax (norm)

 

 

5.4

6.6

6.9

7.5

8.6

10.2

11.4

12.4

Profit After Tax (FRS 3)

 

 

4.0

5.0

5.1

5.9

5.4

7.1

8.7

9.7

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

57.5

58.5

59.3

60.0

62.7

70.2

71.0

71.4

EPS - normalised (p) FD

 

 

9.4

10.7

11.2

11.6

12.9

14.0

15.6

16.8

EPS - FRS 3 (p)

 

 

6.9

8.6

8.6

9.8

8.6

10.1

12.3

13.6

Dividend per share (p)

 

 

1.5

1.9

2.3

2.9

3.6

4.5

5.6

7.0

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

60.1

61.3

60.8

59.2

60.8

60.0

60.0

60.0

EBITDA Margin (%)

 

 

11.4

12.4

12.8

13.4

14.6

14.8

15.5

15.9

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

7.7

8.3

8.8

9.3

10.7

10.7

11.4

11.7

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

18.5

21.1

21.5

18.9

47.5

47.4

46.2

44.7

Intangible Assets

 

 

6.7

7.3

7.2

7.1

31.6

31.5

30.2

29.0

Tangible Assets

 

 

9.8

11.7

12.7

11.7

15.8

15.9

15.9

15.7

Investments

 

 

2.0

2.2

1.6

0.1

0.0

0.0

0.0

0.0

Current Assets

 

 

32.6

35.3

37.1

40.3

51.3

54.8

54.4

60.9

Stocks

 

 

16.8

18.4

22.0

18.1

30.3

32.7

34.6

36.0

Debtors

 

 

12.8

13.9

14.1

19.3

15.5

16.9

17.7

18.3

Cash

 

 

2.9

2.8

1.0

2.9

1.5

2.0

(1.0)

3.5

Other

 

 

0.1

0.2

0.0

0.0

 

 

 

 

Current Liabilities

 

 

(17.3)

(19.4)

(20.7)

(19.4)

(34.8)

(34.0)

(28.9)

(30.4)

Creditors

 

 

(16.9)

(19.0)

(20.3)

(19.0)

(28.0)

(27.2)

(28.9)

(30.4)

Short term borrowings

 

 

(0.4)

(0.4)

(0.4)

(0.4)

(6.8)

(6.8)

0.0

0.0

Long Term Liabilities

 

 

(9.6)

(10.2)

(10.9)

(4.5)

(12.7)

(10.2)

(7.3)

(4.4)

Long term borrowings

 

 

(1.4)

(0.9)

(0.6)

(0.2)

0.0

0.0

0.0

0.0

Other long term liabilities

 

 

(8.2)

(9.2)

(10.4)

(4.3)

(12.7)

(10.2)

(7.3)

(4.4)

Net Assets

 

 

24.2

26.9

26.9

35.3

51.3

58.0

64.4

70.8

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

6.0

6.2

3.5

7.1

12.4

7.4

13.2

14.8

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.1)

(0.2)

(0.3)

(0.2)

(0.1)

Tax

 

 

(0.0)

(0.0)

(0.0)

(0.6)

(2.3)

(2.2)

(2.5)

(2.5)

Capex

 

 

(3.1)

(4.7)

(3.2)

(2.5)

(6.7)

(3.5)

(3.5)

(3.5)

Acquisitions/disposals

 

 

0.0

0.0

0.0

0.0

(27.1)

0.0

0.0

0.0

Financing

 

 

(0.1)

(0.0)

(0.4)

(0.1)

18.3

1.8

0.0

0.0

Dividends

 

 

(0.7)

(0.9)

(1.1)

(1.4)

(1.8)

(2.7)

(3.3)

(4.2)

Net Cash Flow

 

 

1.8

0.3

(1.5)

2.3

(7.4)

0.5

3.8

4.5

Opening net debt/(cash)

 

 

0.7

(1.2)

(1.5)

(0.0)

(2.3)

5.3

4.8

1.0

HP finance leases initiated

 

 

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)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(1.2)

(1.5)

(0.0)

(2.3)

5.3

4.8

1.0

(3.5)

Source: Company accounts, Edison Investment Research. Note: This note calculates EV/EBITDA multiples using last reported net debt.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Walker Greenbank and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Walker Greenbank and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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European Assets Trust (EAT) aims to generate long-term capital growth through investing in listed European small and mid-sized companies. It has a distribution policy to pay 6% of its prior year-end euro-denominated NAV, which supports an attractive yield, currently 5.4%, significantly higher compared with peers. This has helped support a share price premium to EAT’s cum income NAV. The EMIX Smaller Europe ex-UK index had another strong year in 2017, and equity valuations are now more challenging. Notwithstanding, the manager Sam Cosh observes that earnings recoveries are far from mature for many sectors and believes that EAT is well positioned to benefit as Europe’s recovery broadens out.

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