Progress from organic and acquired operations was clearly visible in H118, slightly tempered by subdued UK Brands performance at the period end. Strong dividend growth, prospective cash generation and international developments all send positive signals for future prospects. Save for slightly improved dividend expectations, our headline estimates are unchanged and we believe Walker Greenbank offers investors above-average growth exposure.
H118 results showed good growth in revenue and EBIT at both divisional and group levels. Trading highlights included a strong maiden first half contribution from Clarke & Clarke, further development of Brands’ activities in international markets and confirmation that Standfast & Barracks has put post-flood disruption firmly behind it. The 25% y-o-y uplift in DPS provided a positive marker regarding management’s view of future prospects. Walker Greenbank’s net debt position was slightly better than at the end of January 2017 and the company is on track to significantly reduce borrowings by the end of FY18 on our estimates.
As noted following the pre-close update, UK demand appeared to soften towards the period end; this needs to be monitored but the latest five weeks in H2 – leading into a traditionally strong trading period – provides more encouragement. We have made adjustments to the composition of our estimates; there is no net change to headline revenue, EBIT, PBT or EPS estimates while we have nudged up our dividend growth expectations. No further insurance-related costs, proceeds or capex are anticipated. With a neutral balance sheet position at the end of FY18 and cash generation expected thereafter, Walker Greenbank retains plenty of financial flexibility for investment and/or acquisitions to enhance earnings growth and investor returns alongside a prospective 25% three-year DPS CAGR.
Walker Greenbank’s share price has eased back from pre-results highs but remains up (c 8%) ytd. Our estimates factor in three-year CAGRs (2017-20) of 10.5% for normalised EPS. Consequently, the current-year P/E and EV/EBITDA multiples of 14.1x and 9.2x decline by FY20 to 12.6x and 8.3x, respectively. We believe that confirmation of firmer UK trading will allow the share price to regain forward momentum. Dividend yield is becoming an increasingly attractive part of the investment case.