FY17 was a testing year but management emerges with credit, having restored and improved flood affected fabric printing operations and added another mid-market brand (Clarke & Clarke) to the portfolio. International exposure, acquisition effects and the absence of flood distractions mean that Walker Greenbank is well positioned for good earnings growth. We would expect this momentum to translate to share price performance.
Reported revenue and operating profit increased by 5.2% and 20%, respectively, in FY17. Recovery from the December 2015 flood (at Standfast & Barracks’ fabric printing facility) affected operational performance though insurance cover protected profitability despite a revenue shortfall against budget. A maiden four-month contribution from Clarke & Clarke provided a further boost to Brands and group profitability. Overall, underlying PBT and fully diluted EPS rose by 16.9% and 11.3%, respectively, and full-year DPS was increased by almost 25%. The company moved into a modest net debt position (of £5.3m or 0.4x EBITDA) due to the net cash impact of acquiring Clarke & Clarke.
Management actions – through insurance and operational recovery – mitigated the impact on group financial performance and the team deserves credit for this outturn. Further development of overseas presence, some organisational change – including senior management hires – and the acquisition of Clarke & Clarke during the same 12-month period were other notable achievements. This leaves Walker Greenbank well positioned on all fronts to make progress in FY18 in our view and the company retains the financial flexibility to further develop the business through both organic and acquisitive investment.
Excluding the general market sell-off immediately following the Brexit outcome last June, Walker Greenbank’s share price has largely traded in the 200-220p range over the past 18 months, modestly outperforming the FTSE All Share Index in the year to date. Strong profit growth is expected in FY18 and the current year P/E and EV/EBITDA are 13.3x and 8.7x, respectively; our three-year (2017-20) EPS CAGR is almost 12%. The trailing dividend yield is relatively low at 1.7% but, with a comparable period expected DPS CAGR of c 17%, shareholders look set to receive good income growth also.