This note provides an update on Park’s strategy for growth and progress with key product and distribution initiatives. High levels of investment in e-commerce, over many years, have transformed the business, broadening the product range and attracting new customers via expansion into new areas through innovation and technology. The strategy continues to deliver sustained growth in earnings and dividends, and the business model is highly cash generative, allowing Park to operate without debt. Interest earnings on substantial cash balances make Park a beneficiary from higher rates.
Constant innovation has supported steady growth in Christmas Savings and has allowed the corporate business, based around incentive and rewards services, to grow strongly into what is a very large target market (£5.6bn pa as defined by the UK Giftcard & Voucher Association).This innovation continues in the corporate business, with the roll-out of Evolve, a live online platform providing organisations with a quick, easy and reliable way to reward employees or customers by way of digital rewards codes via email or SMS. Love2shop Worldwide, a partnership with Carlton Group of Canada, gives Evolve a worldwide capability, with obvious medium-term potential. Around two-thirds of Christmas Savings transactions are already made using a mobile device and the new mobile app makes the process faster, easier and more convenient, targeting a broader customer base and increased order levels.
The interim results in late November provided an update on positive operational developments and reported good levels of order growth, requiring no change in our group forecasts. The business is highly seasonal with c 75% of sales and all of the profits generated in H2. Against this background, there were timing effect impacts on the seasonal loss (which widened versus last year) and shareholder cash flow (which was lower despite growth in overall cash balances), but we expect these to unwind during H2. The interim dividend was increased by 5%.
Our fair value is unchanged at 88p per share. It is based on our absolute (DCF) valuation of 86p per share and a P/E relative comparison, with businesses that share similar characteristics, of 90p per share or c 15x 2018e calendar earnings. The benefit of a 50bp rise in interest rates is equivalent to c 6% of PBT over time.