Walker Greenbank’s pre-close trading statement reinforces market estimates, puts its major flood largely into the history books and enables the market to concentrate on the future. April’s FY results announcement could signal the end of a prolonged period of consolidation for the shares.
As anticipated, Walker Greenbank has delivered a strong recovery from the impact of the December 2015 flash flood, which disrupted the H117 performance. FY17 revenue is indicated at £92.4m, consolidating £7.3m from Clarke & Clarke (C&C); this is marginally above our earlier £92.0m estimate. FY brand sales, excluding C&C, are down by 2.2% on a constant currency basis (+1.5% actual currency), compared with a 4.7% (-2.0%) reduction at the interim stage. Similar recoveries are indicated for all regions, reflecting a continued sound underlying performance in a challenging market place, but with improved supply of printed fabrics, following the return of the Lancaster factory to full production. As was seen at the interim stage, profits will be credited with further loss of profit payments from insurers. We leave our underlying FY17 PBT estimate of £10.4m unchanged.
The key message is that the group is back on course. The warehouse is reported to be fully stocked, including a full range of printed textiles. The Brexit vote apparently is having more of an effect on UK demand than on exports. We understand from management that C&C is running in line with earlier management expectations, implying a material positive impact on FY18 earnings; we maintain our FY18 estimates. With the Lancaster factory re-equipped with more modern machinery, continued investment in new and exciting collections across the brands and with medium-term synergy benefits from C&C still to come, the outlook remains positive, despite the challenging trading conditions. With a £17m (gross) equity fund-raising falling short of the £25m cash element of the C&C acquisition, the group moved into debt during the second half. We believe that our FY17 net debt estimate of £5.5m remains realistic.
On the basis of CY18 prospective earnings, Walker Greenbank is rated at a 27% discount to its peer group (12.7x vs 17.7x). Forthcoming results should place the flood into history, enabling the market to look positively at the potential benefits of ongoing consistent investment, including the C&C acquisition.
