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As previously guided in its trading update on 14 June, H1 results have been adversely impacted by operational and supply chain issues in the core Home Improvement’s business, resulting in reduced installations during the peak seasonal trading months of March and April. An unaudited EBITDA loss of £2.3m announced today is in line with revised guidance. Management have taken positive action to address current challenges; operational improvements introduced in recent months are yielding results and a further restructuring exercise implemented in July has identified £0.8m in annualised savings. Alongside this, the senior leadership team has been strengthened with the addition of several experienced interim managers. A strategic review of the business is underway, with KMPG engaged to consider various debt and equity finance options as well as potential interest in certain parts of the business. At current levels Entu trades on an FY18 PER of 4.1x and EV/EBITDA of 3.7x.
Entu
Entu has announced a trading update this morning, with H1 performance held back by supply chain problems and fit capacity constraints, while intense competition in its non-core boilers and energy-switching businesses has resulted in the decision to discontinue these operations. Tighter market conditions have also meant the postponement of planned reductions to customer discounting and the Group now expects to report an underlying LBITDA of c£2.0m for H1. The Group remains committed to executing the action plan outlined alongside preliminary results in March and has appointed an external consultant to accelerate its implementation. We have cut our forecasts to reflect revised expectations, Entu now trades on 9.7x FY18 PER.
Final results in line with expectations following a challenging year that has included significant divisional restructuring, and a detailed balance sheet and accounting policy review. EBITDA for FY16 of £2.7m is in line with management’s revised guidance of £2.6m to £2.7m and ZC forecast of £2.7m. As previously announced no final dividend has been declared, resulting in a total dividend for the year of 0.5p. Management have affirmed intentions to reinstate a dividend as soon as possible; our forecasts of 1.0p in FY17 and 1.5p in FY18 are unchanged and reflect the improved profitability of the business going forward as cost savings are realised. Encouragingly, revenues for the first quarter of FY17 are ahead of plan with £4.0m of annual savings targeted for the year. Entu is on track to meet FY17 expectations whilst implementing the necessary changes to establish a foundation for future growth. Trading on just 5.6x FY17 earnings the valuation is undemanding if restructuring plans continue to be well executed.
Entu has announced that EBITDA from continuing operations will be within the range of its previous guidance of £2.5m to £2.9m at £2.6m to £2.7m. This is in line with ZC forecast of £2.7m in FY16. The FY16 outcome, combined with the fact that revenue for the first three months of FY17 are also in line, is reassuring considering the issues the business has faced during the year. FY17 forecasts assume a c. 60% increase in EBITDA as profitability bounces back. However, as a result of a balance sheet review and the introduction of more prudent accounting policies, the company will not pay a final dividend for FY16. This means total dividend for the year will be 0.5p, not the 1.5p forecast. We leave income forecasts unchanged in FY17 and FY18 but reduce dividend expectations. Although the company does state that it intends to reinstate the dividend as soon as possible the cut to the dividend is disappointing. The valuation on FY17 earnings of 5.4x reflects the difficulties the business has faced over the last twelve to eighteen months.
Entu has announced it has agreed the disposal of Astley Facades and its wholly owned subsidiaries to Duality Group for a nominal sum. The disposal is in line with Entu’s strategic focus on improving the performance of, and driving growth in its core Home Improvements business. In addition, it de-risks the business from a potentially significant increase in working capital commitment. Astley’s contribution to FY16 adj EBITDA is £1.1m, this will now be classified as discontinued. Adj EBITDA from continuing operations is expected to be between £2.5m and £2.9m, in line with guidance provided in the pre close statement (11 th October), excluding Astley’s contribution. The impact in FY17 and FY18 EBITDA is less muted at just c. £400k in each year respectively. Dividend assumptions remain unchanged offering a prospective FY17 yield of 11.9% and on new FY17 earnings the shares trade on a PER of just 4.3x.
Physiomics* (PYC.L) | Milestone Group (MSG.L) | Inspired Energy (INSE . L) | Entu (ENTU.L) | BMR Group (BMR.L) | Independent Oil & Gas (IOG.L) | Northamber (NAR.L) | Mirada (MIRA.L) | Distil (DIS.L) | BNN Technology (BNN.L)
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Ahead of the year end (31 Oct) Entu has released a pre close trading statement. EBITDA for FY16 will be in the range of £3.6m to £4.0m, this is below the estimated £4.2m. As a result, forecasts in FY16 are cut to the mid- point of the range £3.8m, a 9.5% decline. This leads to a decline of c.11% in profit after tax on revenue falling from £108m to c.£103m. The impact in FY17 is greater at c.34% with adj operating profit cut to £4.6m (prev. £7.0m) on revenue now expected to be broadly flat at c.£103.0m (prev. £113.6m). The impact of the downgrade in H216 into FY17 is exacerbated by planned cost savings now expected to be reinvested into the business to strengthen management, controls and the balance sheet. The net debt estimate for the year end increases to c. £5.0m on larger exceptional costs than had previously been forecast. Despite this, management expect to honour the commitment to a 1.0p final dividend making 1.5p for the FY and, despite the cut to numbers, maintains its intention to pay 2.4p in FY17 equating to a c. 10% yield at the current 24.5p share price.
Interim results show a solid performance in terms of core revenue but the ongoing cost base of the discontinued solar business leads to significant downgrades to earnings in FY16 and FY17 of 50% and 17% respectively. As a consequence, the interim dividend is cut to just 0.5p and estimates now assume a total dividend for FY16 of 1.5p, previously 5.3p. That the anticipated new revenue streams did not come through in H1 is disappointing and has left the business with a cost base substantially above where it needs to be. The Board has taken action making changes to senior management and instigating a cost saving initiative to rebase profitability of the business moving forward. Post the cut in earnings expectations the shares trade on a current year PER of 11.4x based on last night’s closing price. However, the bounce back in profitability in FY17 puts it on multiple of 6.4x yielding 4.6%.
entu (UK) plc (‘entu’) posted 2015 final results in-line, delivering adjusted PBT of £8m on revenues of £99m. In September 2015, entu announced the immediate discontinuation of its solar business that accounted for c.25% of its top line, in a prompt and astute, albeit painful, reaction to a 90% government cut in the feed-in tariff that rendered the industry unviable. entu has made solid progress since, internally redeploying resource and shifting emphasis toward B2B energy efficiency. This includes building the necessary capability to win selection as B&Qs exclusive service delivery partner, as the UK home improvements giant gears-up to address the UK window and doors market. We have adjusted our FY16 and FY17 forecasts to reflect this period of reshaping. Fundamental strategy is unchanged, with entu layering further energy efficiency and home improvement services onto its nationwide infrastructure with limited additional cost. Currently trading at 6.1x FY16 PE - a c.60% discount to the average of its sector peers and yielding 9.6% to Oct 2016, entu offers significant value at current levels.
At its H12015 interim results to April, entu (UK) plc (“entu”) flagged issues in residential solar PV, which had fallen from 18.6% of group operating profit in H114 to (6.6%) in H115. Performance was anticipated to recover over the seasonally strong summer period, however, compounded by last Thursday’s proposed c.90% government cuts to Feed-in-Tariff (“FIT”) rates from Jan 2016, and potential VAT hikes from 5% to 20% for PV hardware; run-rates have remained unsatisfactorily low. Entu estimates a £2.0m loss from the division for FY15 vs forecast PBT of £1.6m. Tough solar market conditions are unlikely to ease, and entu has taken the prompt and prudent decision to execute an immediate, controlled, discontinuance of solar PV to focus on more lucrative areas. The impact on October FY15 forecasts is a reduction in continuing PBT from £11.5m to c. £8.0m, and we adjust our FY16 and FY17 PBT forecasts from £13.4m and £14.6m to £10.0m and £11.0m respectively. All forecasts are based on organic growth and assume no acquisitions.
Lower profitability in Entu's H115 results has been well explained, as have the reasons for expecting an improvement in H2 and beyond. We believe that momentum in commercial contracts should ultimately outweigh limited drag from changes to industry incentives. However, in the current year, we have elected to lower EPS by 4.3%. Ahead of demonstrating regained momentum in H2, the 7% prospective yield should appeal to investors.
entu (UK) plc (“entu”) H115 interims are in line with management expectations, and support our FY15 growth forecasts when seasonality and a record order book are factored in. A cut in the Energy Company Obligation (“ECO”) carbon price in the insulation division from £80/tonne to £22.50/tonne at the end of March 2014 made H114 comparators unusually high. H115 revenue and EBIT of £52.9m and £3.8m respectively, vs £56.1m and £5.5m for H114, occurred due to this effect and some disruptive churn in the solar PV sales and marketing teams over the period, which has since stabilised and the division strengthened. These factors are offset by improved margins in the key home improvement division, and a YoY increase in order book from £10m in July 2014 to £30m in July 2015, which includes a rise in the order book of recently acquired Astley facades from £2m to £14m. In addition a new contract with a national DIY retailer in home improvements is conservatively estimated to deliver £10m pa. Entu’s flexible, outsourced, business model enables H215 installation rates to increase with increased order levels, and management expects FY15 numbers to be in line with forecasts by the October year end. The valuation remains appealing, the shares trade on a PER of just 8.0x and EV/EBITDA of 5.5x to Oct 15 with a yield of 7.3%.
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