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Meeting Notes - Oct 05 2022
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We look at divisional positioning and platform investment in more detail post good recent FY figures. We see good subscription momentum and face-to-face training/physical event recovery. WIL looks cheap to us given its repositioning/refocus to GRC and Regulatory markets, plus investment in digitisa
Wilmington plc
The July full year trading update showed that FY22 has been a good year for Wilmington with a full year outcome ahead of expectations. The final results did not disappoint with the added benefit of a final dividend well ahead of expectations (+37% YoY) as a clear signal of Board confidence in the outlook.
Meeting Notes - Sep 22 2022
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FY22 figures in line with July guidance but dividend much better. We see good momentum in WIL subscription businesses and face-to-face training/physical event recovery. Despite share price strength, WIL still looks cheap to us given its repositioning/refocus to GRC and Regulatory markets, plus inve
FY22 has been a good year for Wilmington. The recovery in the face-to-face business should not overshadow the solid organic performance from the information and data led core. Margins continue to be healthy with more to come as the heavy internal lift of the last three years as the group invested heavily in new platforms and commercial structure.
Positive FY update
Following on from an improving H2 for FY21, Wilmington has delivered a strong set of H1 results. Organic growth has strengthened to +12%. Although this has been partly buoyed by the welcome return of face to face event formats, critically the underlying organic growth pre face to face was a healthy +6%. Perhaps the most impressive detail in the results related to the commentary around the face to face recovery, where the demand for virtual formats has remained strong and where face to face has not been wholly cannibalistic.
RISE runs
Investment and refocusing deliver
It was clear at the final results that Wilmington was seeing positive organic tailwinds behind both Information & Data and Education & Training. However, caution around further Covid roadblocks held us back from upgrading estimates. Today’s trading update confirmed these roadblocks have not transpired. The combination of healthy H1 organic growth (approaching 10% on a pre-FX basis) and underlying margin gains are likely to drive a very strong H1 YoY performance.
Positive 1H update and FY upgrades
Increasing focus and momentum
The final results had been well flagged at the end July trading update, with H2 showing a strong recovery for the Education & Training business complementing a solid performance from the Information & Data business.
The final results had been well flagged at the end July trading update, with H2 showing a strong recovery for the Education & Training business complementing a solid performance from the Information & Data business. We upgraded our estimates following the previous trading update and are leaving our broad estimates largely unchanged post the final results. All eyes will be on the November trading update which will provide greater colour on the potential outcomes for the US Healthcare business. There are risks here to both the upside and downside, although the early indications are promising. We believe Wilmington is exiting the pandemic in good shape. The organisational restructure provides both greater clarity around the key value drivers in the group as well as confidence in the strategic growth focus on Wilmington’s core Compliance and GRC markets. Combined with better commercial execution and internal product and service innovation, this should increase confidence around the mid-single digit organic future growth profile. The balance sheet is now in a healthy position and significantly increases the group’s optionality around internal investment and external M&A. Wilmington’s rating has steadily improved as 2021 has progressed, although it continues to lag the Information peer group. Whilst upgrades would be a catalyst to unlock a further re-rating, the current valuation remains relatively undemanding for a company that has demonstrated impressive resilience.
Self-help momentum and live optionality
Meeting Notes - Sep 20 2021
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The full year trading update confirmed that trends outlined at the H1 results have been maintained with the information and data core of the business actually ahead YoY and margin benefits from digital event transition offsetting lower face to face revenues. Overall, the full year performance is now expected to be ahead of prior expectations, and we are upgrading our estimates accordingly for FY21E and beyond. We also note the materially better than expected balance sheet outcome; with working capital benefits and a small asset disposal driving a £17.7m net debt outcome, some £10m better than expected
Meeting Notes - Jul 20 2021
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Strong WILM FY trading update (to June): ahead of expectations for sales, adj. PTP and especially cash flow/net debt. Better 2H performance reflects repositioning/restructuring to digital post C-19 and tight cost/cash control. We also relook at the new operating and reporting structure, and remodel
Strategic momentum
Given the extremes faced over the last 12 months; these results underline the fundamental strengths of the Wilmington business. The financial headlines revolve around non event related stability and the margin benefits of lower cost to deliver digital event and training formats. The speed at which Wilmington has been able to secure cost savings and react to client demand are the features that stand out from our perspective. Question marks still remain but these revolve primarily around the timing and extent of any face to face recovery and how this will translate into the group margin mix moving forward. For the time being, margins are benefiting at the expense of revenue. A full recovery will see revenue upside and the challenge for the group will be around the extent to which recent margin gains can be protected. The return of the dividend is a welcome sign of optimism and underpins a valuation that looks modest against a peer group that has re-rated significantly despite business mixes that looks less attractive than Wilmington’s
1H well above forecast; margin strong
Yesterday’s trading update re-confirmed many of the themes covered in the September final results announcement. That which is in Wilmington’s immediate control (ie costs and digital event transformation) are proving to be better than expected. The resilience of the core data businesses and the speed of digital response to event cancellations have resulted in a good degree of downside mitigation for both revenues and, critically, margins. However, there is much that is out of Wilmington’s immediate control (ie the ability to run a small number of larger events) and here the outlook is becoming more cautious. We have tightened our estimates accordingly, although this is not as material as the original downside scenario had suggested. In our eyes, larger event risk is already fully priced into the Wilmington valuation so the updated guidance should not be a reason to disturb the share price. Beyond shorter term event risk, we continue to see significant value within the Group. In our recent, detailed note (Putting the best foot forward – 21st Sept), we argued that Risk & Compliance alone could be worth more than the market cap of the entire group. This thesis remains unchanged.
These were impressive FY 20 results that came in at the top end of guidance given back in March. The Data & Information core has proven resilient whilst the swift digital transition with Training and Networking has mitigated the worst revenue impacts from lockdown. Underlying cash generation was healthy, and management have been able to materially de-risk the balance sheet without needing to raise dilutive, new equity capital. In this note, we are re-initiating coverage will full estimates published for FY 21 and beyond. We also discuss the revenue scenarios outlined by the company at the FY 20 results announcement and what these imply in terms of earnings outcomes. Both of these scenarios hinge on the key swing factor for FY 21; namely whether face to face events can resume in time for Wilmington’s H2. Our estimates effectively represent a middle ground between these two outcomes. In our eyes, the current valuation is difficult to justify on fundamentals, nor on a comparative basis. Although we do not know the full current year outcome for the rest of the peer group, we would be surprised if many do better than Wilmington and yet the valuation gap has widened. Looking at the components within the group, the argument can be made that Risk & Compliance alone could be worth more than the current group market capitalisation. This suggests that investors are being given a free option on the c.£70m of revenue and £6m of EBIT (£80m / £13m pre-Covid) that sit outside Risk & Compliance.
We have revised our financial forecasts for Wilmington to reflect the potential impact of COVID-19 - resulting in substantial EPS downgrades (60% and 23% for FY20F and FY21F, respectively). That said, and whilst acknowledging that our new estimates carry a higher degree of risk than usual, we believe resultant valuation multiples suggest considerable caution is already factored in. On this basis and given that we view it as a good quality company with solid post-COVID growth and cash flow prospects, we have decided to upgrade our (previously under review) HOLD recommendation to BUY.
Wilmington’s interims met our downgraded expectation and showed signs that trading momentum may be improving. They also provided the opportunity to hear from the group’s new CEO who gave an upbeat assessment of the business and its potential. We have updated our forecasts which suggest a solid EPS progression, robust cash generation and upside potential to our DPS assumptions. Against this backdrop, the group’s stock valuation does not look overly demanding but given past disappointments, we would like to see further signs that self-help initiatives are bearing fruit and hear more on its CEO’s plans before reviewing our HOLD recommendation.
Total revenues are up 6% for Q1, driven by the HSJ acquisition with underlying revenues down 3%, broadly in-line with the update provided at the finals stage. Q1 PBT is down slightly on investments previously identified. There has been some acceleration in training digitisation investment and some culling of US networking events. The latter has impacted Q1 revenues. Looking forward expectations are for H1 revenue and profit to be around flat with the normal seasonal profitability bias to H2 expected. For the full year the Company indicates it is on track to deliver against expectations. Net debt was £42.4m and cash continues to track well (it was belter at the final results stage than expected). We expect sentiment will improve once the board appointments are dealt with (Chairman and CFO). Stock remains notably cheap.
Howden Joinery Group (HWDN LN) Positive trading underpins f/casts despite the tougher backdrop | Wilmington (WIL LN) No change to trading trends
Wilmington plc Howden Joinery Group PLC
We have refreshed our quality style screen for the first time since its inception in February this year. As before, the screen selects the 25 stocks exhibiting the highest quality characteristics according to our criteria from our universe of approx. 500 stocks and we have chosen 10 stocks to focus on. Since inception the screen has significantly outperformed the main small-cap index and marginally outperformed the microcap index. There was notable volatility around the UK general election, which is interesting as quality would usually be seen as a defensive style in large-caps. As expected, turnover of constituents is modest with only 9 leavers and joiners despite the extended time-scale since inception. We will refresh again in five to six months’ time.
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For the 9 months to end March group revenues rose 8% at CER with FX boosting this to 13%. The more developed and focused Risk & Compliance and Healthcare businesses are generating good organic growth while Professional is working through its reorganisation in line with the Sixth Gear project. We have adjusted our forecasts to reflect the SBP approach, which impacts by £0.6m per annum, and the property costs and the positive cash receipt (see our last note). FY17 EPS falls to 19.1p from 19.6p and FY18 to 22.2p vs 23.1p. Net Debt declines from £48m to £41m for FY17 and to £39m from £40m previously for FY18. We adjust our TP (based on 12x Calendar 2017 EV/EBITDA) to 336p (was 344p) which in effect reflects the property changes. We expect the Sixth Gear project to boost the performance of Professional in due course, resulting in a more focused and synchronised growth across the portfolio. Wilmington remains good value and we reiterate our BUY rating.
Wilmington announced the acquisition of SWAT Group Limited last week. The business provides training and technical compliance support to accountancy businesses in London and the South West. This will bolster the range of accountancy services offered by the Finance division and extend its geographic range in the UK. SWATs revenues are derived in broadly equal proportions from training and information & consultancy. An attractive purchase price (we estimate c5x EBIT) helps make a modest acquisition material at the EPS line, enhancing our FY17 by 2.3% and FY18 by 2.5%. FY17 EPS growth is now 11.7%. There is further substantial capacity to acquire and boost this growth further (by double digit %) and increase the potential exploitation of the secular global growth trend in compliance and regulation. Our Target Price rises to 339p and based on a 12 month TSR of 40.9% we reiterate our Buy rating.
Friday’s “surprise” referendum vote still has of course a very long way to play out in terms of political, geo-political and economic ramifications, though the initial movements in markets and currencies were not a surprise given the obvious shock and uncertainty. In this piece we offer a few thoughts on our coverage universe going forward, both where our views are evolving and where existing themes are reinforced. Sectors under more pressure than before include: Consumer, General Retail, Construction & Support Services. Sectors where our existing themes should prove more resilient include: Technology, Life Sciences and Healthcare and much of General Financials – though with some caveats. In most sectors interesting opportunities/angles are arising – currency and potential M&A being obvious examples in the Industrials, Tech, Heallthcare and Media sectors.
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H1 shows good progress in the powerhouse units, Risk & Compliance and Finance delivering strong growth. The FRA acquisition is working well and International revenues have increased to 42% of group vs a 38% comp. The Insight unit has been impacted by competition in some lower end products. WIL decided some time ago to avoid these areas so we are lee concerned about this. Short term ambiguity in legal training competency requirements is impacting the Legal CPD training business that appeared to be on track to stabilise. The group plans to accelerate integration within the legal unit (3 businesses) to improve profitability. We expect to shave off c£0.2m from EBIT to reflect the Legal/Insight drags. The Group has made a confident statement about the outlook and we flag strong deferred revenue growth of 6% (to £21.3m) showing good growth in visible quality revenues. This bodes well for momentum in H2 and FY17. While there are some small irritations the WIL investment case is on track for strong high quality value creation. We maintain our Buy rating.
WIL has announced the acquisition of JMH Publishing Ltd (which trades under the Wellards brand name) for a headline price of £4.2m. Wellards is a leading UK provider of specialist and accredited online education for the healthcare industry. This fits into Wilmington’s existing pharmaceutical business. At 6.3x EBIT, assuming a net cost of £3.8m, the deal is very good value. We lift our FY16 17 EPS (first full year of contribution) by 1.7%. As a result our 3 year EPS CAGR rises to 12.5%. Our TP rises to 332p (from 327p) implying a 12 month TSR of 27.9%. We reiterate our Buy rating for one of our 2016 Best Ideas. The Wilmington investment case is based on secular global growth in regulation and compliance, the high quality management team, scope for exploitation of the existing business and further expansion both in terms of service offering and geography.
WIL has announced the acquisition of “Wellards” (JMH Publishing Ltd) for a headline price of £4.2m. Wellards is a leading UK provider of specialist and accredited online education for the healthcare industry. Wilmington has been clear on its strategy in terms of what service offerings it wishes to provide in which segments. This acquisition helps fill in the pharmaceutical offering in the Insight unit. The acquired business derives c70% of its revenues from 1 year subscriptions providing a high level of visibility. The courses cover everything from basic to higher accredited training. At 6.3x the deal is very good value. We reiterate our Buy rating for one of 2016 Best Ideas. The Wilmington investment case is based on the secular global growth in regulation and compliance, the high quality management team, scope for exploitation of the existing business and further expansion both in terms of service offering and geography.
There are 3 very good reasons to own this stock (i) exposure to the secular growth in global regulation and compliance, (ii) exposure to a quality operation with good visibility that can be improved by top grade management and (iii) Wilmington is a business that can be scaled significantly and has immediate firepower to fund earnings enhancing acquisitions. And all of this is available at an attractive valuation! Last year the stock performed well for us with a strong positive return (capital 14.2%, with another 3.3% in dividends) against a weak equity market. We see further upside potential in the short and medium term and retain the stock in our best ideas portfolio. Our 3 year earnings CAGR is 11.8% with the potential for acquisitions to lift earnings by 7% to 12%.
Wilmington has provided another on-track update. The Company saw growth in operating profits and margins during the period ending September. Total revenues rose 8% with underlying at +1% despite a tough comp in Risk & Compliance. Q1 trends seem to match the update at the prelims stage in mid-September with some small variances. Accounting is ahead (July budget has had a more material benefit than thought), Risk & Compliance was also strong (notably AXCO risk) and Insight inline. In Legal, CLE training remains weak but offset to a degree by CLT Scotland and Bond Solon. The FRA acquisition appears to be performing well (healthcare events and trading and outlook strong) and already the group is making positive noises about the success of intra-group collaboration. With respect to the full year, Accounting strength may reflect a different spend pattern by clients and even out over the year. Risk & Compliance looks the strongest area and may outperform. Legal looks likely to remain sluggish and the strengthening of Insight looks on track with FRA performing. The Company has indicated it on track to meet full year expectations. WIL remains a strong play on the secular global growth in regulation and legislation. The business has significant opportunity to take advantage of this. We reiterate our Buy Rating.
Following the results last week we are reiterating our Buy and highlighting Wilmington as one of our Best Ideas portfolio. Recent FY15 results delivered good earnings growth (12.4%) with profits and dividends slightly ahead of our forecasts leading us to maintain revenue/profit estimates and lift our dividend forecasts. There was good cash conversion again (107%) highlighting the natural strength of the business. The strategy launched by management continues to deliver and we expect good progress on earnings growth (+15.7%) and quality again in FY16. There is scope to boost earnings growth materially through further acquisitions (by 7% to 12% if using £25m). From a medium term perspective the 3 year EPS CAGR of 11.8% is also attractive. We continue to see WIL as a strong play on the growth in global regulation and compliance across many sectors (International revenues rose to 39% from 37% in FY15). Management are executing, have a record of running larger businesses successfully and the drive/ambition to create more value. We reiterate our Buy rating.
Wilmington has delivered profits and dividends slightly ahead of our forecasts for FY15. There was good cash conversion again (107%). Management indicate trading is on track for FY16. The strategic program launched by management continues to deliver and we expect good progress on earnings growth and quality again in FY16. We continue to see WIL as a strong play on the growth in regulation and compliance across many sectors. Good management that are executing support further progress. We reiterate our Buy rating for one of our Best Ideas.
Wilmington has made an acquisition that bolsters one of its core focal areas, Finance, and helps strengthen Healthcare. We expect the group to pay out the maximum £20.6m given the momentum of the acquired business. On this basis it is being acquired on an attractive historic 7.9x EBITDA and even lower on a prospective basis. We lift our TP to 327p from 313p in-line with our existing valuation methodology. Wilmington remains underleveraged and there is scope for further value accretive deals that raise the long term potential of the group. We reiterate our Buy rating.
This week has seen two positive developments for WIL, the acquisition of US conference and networking business, Financial Research Associates, and an upbeat capital markets day. We have raised our FY2015E and FY2016E EPS forecasts by 3% to reflect the benefits of this deal and believe the group is increasingly well-placed to harness its IP, client relationships and the dynamic nature of its underlying markets to drive medium-term growth. We have raised our target price to 290p and upgraded our recommendation to Add.
WIL is pursuing stronger commercialisation of its IP via reorganised and refocused sales and product. This should improve the already healthy organic growth outlook. There are substantial savings from internal integration to fund investment meaning this is no jam tomorrow margin story. An upgrade has been delivered and there is probably more to come. We expect cash to be invested in acquisitions to boost earnings. The investment proposition has a simple low risk formula and a high chance of success. The stock is performing and we upgrade our TP from 272p to 313p. Buy.
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