A reassuring year-end update confirms Walker Greenbank’s FY20 ended in line with management expectations. There do not appear to have been any major changes in market conditions in H2 for each of the three reporting regions. Going into FY21, a progressive strategy roll-out by the new management team will set the scene for future growth aspirations. Our estimates are unchanged and the company’s P/E remains below 10x.
Indicative FY20 revenues of £111m are in line with our estimate as are the headline components: total Brand division sales were c £90m (c -3.5% y-o-y comprising product-based -3.0%, core licence income +13.9%, other licence income c 40% lower) with Manufacturing sales to third parties c £20m (+5.5% y-o-y). Strong progress from Morris & Co appears to have contributed to slightly improved yearon-year trends in the UK and certain north European markets, implicitly with an equivalent offset in other brands/international markets. Steps taken in H2 include Clarke & Clarke’s (C&C’s) new North American distributor arrangement with Kravet Inc and a sales hire in Germany should progressively feed into international brand sales as FY21 progresses. The update contained no specific commentary regarding group profitability, save for a reiteration that c £1m of cost savings from consolidating C&Cs support functions was achieved in H2. Pre IFRS 16 net funds of c £1m at the year-end were in line with those seen at the interim stage.
A new management team is substantially in place – pending a CFO appointment – and the process of building out and executing its multi-year strategic plan is underway. An enhanced brand and core product focus should start to become apparent over FY21; we noted the Sanderson/National Trust collaboration (announced 30 January) and will be looking for other markers with the FY20 results announcement (23 April). Some positive post UK general election commentary (eg Coutts Real Estate, Savills and Bovill) may feed through to higher residential transactions in due course and this would benefit Walker Greenbank in its domestic market, which accounts for around half of revenues.
Walker Greenbank’s share price rallied strongly from the beginning of December but has given up most of those gains in 2020 trading so far. Consequently, the company’s valuation is little changed from our December note with a closing year P/E of 9.1x and EV/EBITDA (adjusted for pensions cash) of 5.5x and reductions in both metrics expected over our estimate horizon.