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Reassuring trading up date as expected. At News revenue reductions within the guided range, profits maintained by cost savings. Books remains challenging but Wordery performing well. Mixed performance at Education, but operational benefits starting to come through. Continued strength at Parcel Freight. CY 16 P/E of 8.5x, BUY, TP 190p.
Connect Group
A positive update from Connect this morning confirms that trading for the 19 week period to 9th January has been in line with expectations. Group revenue increased by 6.4% including the benefit of a full period's contribution from the Parcel Freight (Tuffnells) division. Group like for like revenues declined by 2.3%, the main driver of which was Connect News & Media, where like for likes declined by 3.7%, a solid performance from the mature and still dominant part of the Group. Connect has also announced that ASOS has signed up, on an initial trial basis, as the second customer (after Amazon) for Pass My Parcel, the Group's Click & Collect service. Pass My Parcel is said to have delivered an excellent operational performance over Christmas and this is another promising development. No changes to forecasts and we remain at Buy, noting the 6% yield and undemanding rating.
Actual Experience (ACT LN) Positioning for global growth | Connect Group (CNCT LN) In line trading update, ASOS sign up to Click & Collect trial | easyHotel (EZH LN) Positive site pipeline news - European Expansion | Fenner (FENR LN) US restructuring; trading still tough | Instem (INS LN) In line FY trading update | John Menzies (MNZS LN) Chief Exec to leave | Xaar (XAR LN) 2015 profitability ahead of expectations
CONN EZH FENR INS MNZS XAR 9F8
FY results were slightly ahead as strength at Parcel Freight offset weakness in News. FD EPS estimates increased 2% and 3% in FY 16 and FY 17. Net Debt increased due to £20m of capex in the next 2 years. In our note we outline the opportunities to extract synergies from the existing businesses. We also explore the pockets of growth, notably Parcel Freight, PMP, Wordery, and the Core Books business. CY 2016 P/E of 8.1x and yield of 6% are attractive. TP increased from 180p to 190p.
Underlying FY results a little ahead of our estimates, with strong growth in Parcel division. Net debt increased as expected following Tuffnells acquisition. FD EPS up 2% and 3% for FY 2016 and 2017 but net debt increased due to higher capex. 20% and 10% underlying revenue and profit growth at Parcel Freight. EBIT stable in News & Media despite investment in PMP and absence of World Cup. Revenue decline at Books but strength at Wordery and a new plan for growth. Stability at Education & Care despite market weakness and investment. The CY 16 P/E 7.2x is inexpensive and supported by a 6.7% dividend yield. BUY, TP 180p.
Revenue growth of 3.1%, EPS increased 1%. News & Media reductions within the guided range with continued signs of cover price inflation. Books remains stable with increased sales to trade. Good momentum at education and care despite Findel warning. Impressive 20.6% revenue growth at new Parcel Freight division. BUY, TP 180p.
Connect has released an encouraging update for the 44 week period to 7th July. The highlights for us are a solid performance at Connect News & Media and continued strong growth (revenue +20.6%) at recently acquired Connect Parcel Freight. Parcel Freight/ Tuffnells looks to us to be an excellent addition to the Group. It is a specialist business with good margins (high single digit) and an impressive track record of revenue and profit growth. After the disappointments of previous acquisitions (Bertrams books and The Consortium education supplies), we think this could be the acquisition that succeeds in bringing a leg of growth to the Connect investment case. The shares have drifted recently and we upgrade to BUY this morning, noting the 6% dividend yield and undemanding rating (<8x P/E).
