Park Group continued to trade well in H119, with order books in line with expectations, a reduced seasonal loss, strong cash flow and the dividend increased. Early results from the strategic review undertaken by the new senior management team indicate a further push towards full digital enablement, harnessing market trends to further grow the core multi-retailer redemption offering in existing markets and tap new areas with strong potential.
Park’s business is highly seasonal, with c 75% of annual revenues and all of the profits falling into the second half of the year, including the key Christmas trading period. Importantly, for the current (FY19) year, the H119 results to 30 September show underlying trading and order books in line with expectations. The seasonal pre-tax loss reduced to £1.5m (H118: £1.9m), mainly due to timing factors, cash flow was strong and the interim dividend was increased by 5%. The anticipated IFRS 15 restatements show a relatively modest annual profit deferral of c 3%, with no impact on billings, ultimate profitability, cash flow or dividend-paying capacity. Our FY19 PBT estimate falls c 6% due to this profit deferral, and also as a result of expenses related to the strategic review undertaken by the new senior management team.
The strategic review highlights the good growth potential in multi-retailer redemption products and the strengths of Park’s existing offering. It also highlights opportunities for growth and efficiency through streamlining, simplification and an acceleration in the digital enablement that has driven growth over the past 10 years. Card and digital formats are leading growth in existing markets and will be given yet more focus. Park also plans to use that same technological and product capability to further penetrate the consumer market, a £2bn+ market opportunity where its current penetration is minimal compared with its dominant position in the Christmas savings market and strong position in the business sector.
Our fair value estimate is unchanged at 87p. This is derived from our modified DCF valuation (unchanged at 90p) and a P/E relative comparison with a broad range of companies that share similar characteristics of 84p (14x FY20e calendar earnings). This comparison highlights the scope for accelerated growth from digital enablement to support valuation.