Walker Greenbank’s trading statement indicates profits in line with market expectations. A likely interim insurance payment covering lost profits and asset damage, relating to the December 2015 flood, is expected in due course. We hope to restore our pre-flood profit estimates when the payment is confirmed.
The clear message in the Walker Greenbank year-end update is that trading is in line with market expectations, despite the more challenging global climate. Brand sales are reported 6.4% ahead in constant currency 5.7% in reported currency; a 4.8% rise in UK sales (61% of the total) has been supported by continued strong export progress, with increased sales in the US, Western Europe and the rest of the world. Manufacturing operations also performed strongly, despite the cessation of trading at the fabric printing business following the flash flood in early December. Overall full-year revenue rose by 5.8% to £88.2m.
Management has indicated that declared profits (to be announced in mid April) may also consolidate an interim payment from its insurers. We understand that this payment will be declared as an exceptional item, comprising costs incurred in tackling the flood damage and the anticipated loss of profit for the period to 31 January 2016. On this basis, it is quite likely that we will be able to reinstate our pre-flood estimates of underlying pre-tax profits of £8.7m and £9.4m for the years to January 2016 and 2017. However, at this stage, we have decided to await an announcement from the company to the effect that such a payment has been agreed and received before making any adjustments.
We adjusted our cash flow estimates in December. The timing of cash movements related to the flood is difficult to predict; however, group finances remain strong.
On the basis of the above EPS figures, Walker Greenbank shares are rated at a 23% premium rating relative to its peer group. However, reinstatement of earlier estimates would give the shares a similar rating (15.5x vs 15.4x) on the basis of prospective calendar 2016 earnings. We believe that this reflects neither the group’s strong medium-term record nor its positive medium-term outlook, although the market is unlikely to recognise this fully until the interim payment is confirmed.