This morning’s pre-close trading update confirmed that SAL’s FY17 finished on a positive note. A strong final quarter meant that both pre-tax profit and cash generation were better than anticipated, and the latter prompted a proposed 1.5p/share final dividend, vs our 1.0p/share forecast.
Although FY17 overall should be broadly in line with expectations, year-end adjusted net cash of £1.9m (FY16: £0.4m net cash) is c £0.2m better than we had forecast. SAL has repaid all outstanding debt over the last 12 months despite a relatively challenging retail environment, but can still access £1.25m of undrawn facilities if required.
We have held our underlying FY18 operational forecast pending the FY17 results announcement, but take a more conservative view of impact of the group’s strategy for its German operations, so incorporate some potential one-off costs this year.
Whilst UK Promotions and German RMUs are likely to have been among the stronger areas in FY17, other components of SAP’s operations in Germany remain weak. We have reduced our FY18 forecast to reflect possible costs, related to prospective rationalisation and restructuring of that business. As, however, we don’t expect that to materially impact the group’s distribution capacity or indeed appetite, we forecast another 1.5p/share dividend for FY18.
Restoration of the dividend moves the shares onto a prospective 4.5% yield, covered by forecast EPS and cash generation, both of which have been beneficiaries of recent focus on improving individual divisional profitability and productivity, to create sustainable revenues and margins.
The results should provide clarity on country and divisional performances, as well as progress on the roll out of Mobile Promotions Kiosks, and Brand Experiences on behalf of significant new clients secured over the last 18 months. The £1.9m year-end net cash represents significant underpinning for the shares at the current price, and reassurance regarding SAP’s ability to deliver its planned strategy. Stripping out the cash from the current market cap would leave the shares on even more undemanding ratings.