FY18 ended on a weaker UK trading note but Walker Greenbank still delivered good overall growth from the enlarged business and demonstrated manufacturing stability after previous disruption. At the group level, adjusted PBT (excluding LTIP charges and non-trading items) rose by +20.2% to £12.5m in FY18 and, in the event, was slightly better than our reduced year end estimates. On the same basis fully diluted EPS increased by 11.7%, while full-year DPS was 21.1% higher than the prior year. Net debt was unchanged at £5.3m at the year end and equivalent to just 0.3x reported FY18 EBITDA. 

Revisiting estimates, we have put through further profit and earnings reductions (in the 5% to 11% range for FY19 and FY20) substantially due to UK Brands expectations. We are also adopting more conservative dividend growth expectations, representing a CAGR of 5% over our forecast horizon. More positively, we are encouraged by a more explicit and driven international growth strategy and other initiatives (including technology investment, complementary line extensions and increasing licensing activity), which clearly represent faster revenue growth opportunities. Given the balance sheet position, group progress could conceivably also be enhanced by acquisitions. 

Walker Greenbank’s share price has settled towards the lower end of a 120–145p trading range seen since the 15 November update. On our revised estimates, the FY19 P/E and EV/EBITDA (adjusted for pension cash contributions) are now just 8.4x and 6.2x respectively. We acknowledge that earnings growth expectations have been lowered and are comparatively modest but dividend growth prospects are somewhat better, leading to income attractions. Financial risk remains very low and the rating seems to attribute little value to the company’s unique brand portfolio and manufacturing proposition in our view.