Park’s AGM statement confirms that trading in the year to date is in line with expectations and expresses confidence in the outlook. Our estimates are unchanged. Ongoing investment in digital technology to support product innovation and e-commerce has been at the centre of Park’s growth strategy over a number of years, and encouragingly for future prospects, the group reports progress with recent product and distribution initiatives. Park’s debt-free balance sheet and cash-generative business model support this growth investment, as well as an attractive growing dividend.
Despite some concerns about the strength of UK consumer demand in general, Park is continuing to deliver growth in both its corporate and consumer divisions, and is trading in line with expectations. Highlighting the growth in order books, particularly in Christmas prepayments, total cash balances (both shareholder balances and the segregated customer balances on which Park earns interest) have continued to increase and are again ahead of the same period last year. In the current year, the deposit rates applied to cash balances remain depressed. However, with investors again looking for a turn in the interest rate cycle, we note that Park, with a lag, would be a beneficiary, and that a 0.5% increase in rates have a c 5% impact on PBT.
The past year has been an active period for new product and distribution initiatives and the statement provides positive updates on their development. In the corporate division, both the Evolve digital rewards platform and the recently added international capability are growing client numbers. In the consumer division, the Christmas prepayments mobile app has been well received and positive customer feedback is driving further enhancements. Mastercard issuance by Park has now been extended to physical cards, which customers can use at any retailer accepting Mastercard, both online and in store
With no changes to our estimates, our fair value remains 88p per share, which we base on our absolute DCF valuation (86p) and a relative comparison with businesses that share similar characteristics (90p). The attractive dividend yield is well covered and earnings would benefit, with a lag, from an eventual increase in interest rates.