Things are clearing: trading is in line with expectations; the Lancaster factory is almost back to full production and working on its order backlog; insurance payments are coming in; and new business streams are being established. The share price is justifiably holding up well.
The key message in the half-year trading update is that trading is in line with board expectations. Under the continued influence of the major flood last December at its fabric printing business, Brand sales are 2.1% down in reported currency (4.2% in ccy), with an improvement in export sales just failing to balance a 6.1% drop in UK sales. There seems little doubt that interim results, to be announced in midOctober, will show underlying pre-tax profits, before the add back of the loss of profits claim, significantly below the £3.68m declared for the previous year.
The group has announced receipt of a further £4.0m, making £12m to date, from its insurers. We look for further payments to be agreed and paid in the coming months. The factory is reported to be almost back to full production and making sound progress towards fulfilling the backlog of printed fabric orders for both internal and third-party customers; replacement capacity includes some more modern and more efficient machinery, raising the medium-term potential. Other positive vibes include the indication that Brexit will be marginally positive from a currency viewpoint, while last month’s announcement of a new licensing agreement for the supply of bed linen into the US is another indication that the group continues to look forward positively. We introduced a profit estimate of £7.5m for FY17 several months ago taking account of likely damage and loss of profits related to the flood; the extent of the insurance payments already agreed suggests the balance between underlying trading and loss of profits receipts will need revising, but we await the interim results announcement before adjusting this target. More significantly, we remain optimistic that the underlying performance for the full year, following the precedent set last year and consolidating loss of profits receipts, will meet our earlier adjusted pre-tax estimate of £9.4m. We do not propose to change our FY18 estimates.
The Walker Greenbank share price continues to hold steady in the face of uncertainty. A prospective rating of 15.6x CY17 earnings is 5.8% below the 16.5x of its peer group. This represents sound value in the context of the group’s consistent record and recovery potential from short-term challenges.