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These are exciting times for Hogg Robinson (HRG). The distribution of airline bookings for business travel is undergoing fundamental change and technology developed by HRG is at the forefront of this evolution. The disruptive stance taken by HRG and its investment in technology is now attracting significant interest. 42 new contracts since April support our PBT growth forecasts in FY19 and FY20 of 21% and 18%. With HRG trading on a FY19 rating of 8x and offering a yield of 4x we re-iterate our buy recommendation.
Hogg Robinson Group
Edison Investment Research is terminating coverage on Hogg Robinson Group (HRG). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
HRG is, effectively, a technology company and that is not reflected in its FY18 PE rating of 9x. HRG’s lean operational platform and in-house software means that it can take advantage of the rapid transformation taking place in the travel management sector. The increased investment in both its divisions, Travel Management and Fraedom, underlines the ambition and growth opportunities. We have upgraded our 3yr CAGR in PBT to 9% (previously 7%), having introduced estimates for FY20 and expect a dividend yield of c5%. Our price target is increased to 105p (95p), representing 56% upside and we maintain our BUY recommendation.
Hogg Robinson (HRG) has combined a strong set of financials with a declaration of medium-term growth initiatives in both travel management and FinTech. Importantly, their implementation should be facilitated by the success of management’s largely completed restructuring and deleveraging programme. While there will be a short-term cost (we are reducing our current-year PBT forecast by 17%), this is wholly related to stated opex investment rather than any business deterioration (our revenue forecast is unchanged). Robust finances (FY17 net debt/EBITDA of just 0.3x) should allow continued dividend growth (FY17 cover of 3.0x).
Sterling weakness drives PBT beat of >8%.
Hogg Robinson Group (HRG) has again delivered, with management confident that it should continue to brave headwinds to meet full-year expectations. Moreover, work on key initiatives continues apace, notably growth in managed travel and technology (Fraedom) as well as restructuring and cash generation. The financial position is “robust” (net debt/EBITDA of just 0.5x over the 12 months to September), allowing potentially lucrative investment and a progressive dividend policy (FY17e cover of almost 3x).
Trading in line, valuation remains very attractive. We restate our Buy.
The ‘strategic review’, the result of which is expected to be released in 2Q2017, highlights a number of options available to HRG and the strength of its current position. HRG could increase the level of investment in Fraedom or Management Travel, crystallise the value of Fraedom through a sale/IPO, increase contributions to the pension scheme, increase the level of dividend, engage in M&A or even a combination of the above. As such, HRG is now at an interesting stage in its development with the potential to generate substantial shareholder value. We reiterate our buy recommendation and price target of 95p, implying 32% upside. Even then, the FY18 PE rating is still only 12x.
Hogg Robinson (HRG) continues to please with 12% growth in trading profit in the half to September. Currency boost apart, there was a further solid underlying advance (7%) by its main activity, travel management, despite 4% lower revenue in testing conditions. Increasing payoff from restructuring and technology-driven efficiencies reinforces confidence in HRG’s ability “to do things smarter” and in our forecasts, which are maintained on a constant currency basis but increased now owing to FX. Cash generation (net debt/EBITDA of just 0.5x for the last 12 months) remains strong, allowing welcome investment and dividend flexibility.
3% EBIT beat (constant exchange rates). FY in line with market expectations, but pension deficit increases materially.
Hogg Robinson Group (HRG) recently provided insight into its technology business, Fraedom, which offers payments, expenses and travel software tools. We explore Fraedom in more depth, looking at the growth strategy, competitive positioning and financial prospects for this part of HRG’s business. This well-established, profitable business looks set to contribute to the group’s growth over the medium term.
IMS confirmation of Q1 trading resilience is backed up by reassurance that Hogg Robinson (HRG) is in good shape to weather potential Brexit uncertainty. Strong finances, a fast-developing Fraedom technology business and increasing benefits from corporate restructuring should mitigate market pressures, while in a downturn HRG has been seen to benefit from a corporate desire to use professionals to cut travel costs. We reiterate that low net debt (FY17e net debt/EBITDA of just 0.5x) allows for profitable investment and returns to shareholders.
Following Brexit we see two new potential catalysts for HRG; FX translation and increased demand for its outsourcing services should UK economic activity slow. With an estimated 58% of revenues generated overseas we calculate that following the decline in sterling and by using current FX rates, HRG’s FY17 EBIT could be 7% higher than our current estimates resulting in EBIT growth of 12%. When combined with an ‘in-line’ 1QFY17 trading update the shares, which have actually declined since June 23 rd , continue to offer great value on a PE rating of 8x and dividend yield of 4.4% for FY17. We reiterate our buy recommendation and increase the price target to 95p.
Hogg Robinson’s (HRG’s) development of software-as-a-service (Fraedom) is paying off impressively with “excellent” performance in the year to March. A near-doubling in technology trading profit more than made up for relative softness in travel management and looks set to continue to drive HRG’s growth in addition to likely increasing benefits from corporate restructuring. Bumper cash generation (FY16 net debt/EBITDA of just 0.6x) offers ample scope for profitable investment and returns to shareholders.
2% EBIT beat, exceptional cash generation, modest trim to ’17 estimates
Despite trading on a FY16E PE rating of 10x, offering a dividend yield of 3.7%, deleveraging and growing PBT by 5% the shares are virtually unchanged over the last 12 months. Ahead of the prelims on May 24th we outline four catalysts for share price appreciation, deleveraging raises the potential for a special dividend, peer group valuation, reduced non-cash, charge on pension liabilities, and new management. We initiate with a buy recommendation and a price target of 80p, representing 20% upside.
Trading continues in line. 30%+ upside.
A 10% rise in half-year trading profit backs up clear H215 recovery. Hogg Robinson (HRG) is delivering positive signs of meeting key objectives, ie reduced cost base (annualised savings of £7m) and net debt (-5% y-o-y), as well as growth in its managed travel business. Meanwhile, its enhanced technology offering, boosted by the new Fraedom brand, is being well received. However, the current uncertain environment of the travel industry suggests caution. We are slightly shading our expectations of profit for this year and next but, importantly, not of the dividend, which remains securely covered (FY16e 2.8x) and financed.
15% growth in underlying PBT, and 5% fall in net debt, but headwinds take our forecasts down by c.2%.
Hogg Robinson (HRG) is making good progress adjusting to a changing corporate travel market by addressing the cost base and strengthening its ability to serve the wider travel industry and expense sectors with an enhanced technology offering. Recent IMS confirmation of momentum after clear H215 recovery is encouraging, even if structural pressures persist. Despite marked outperformance since May’s results, the rating is low and strong cash generation backs a generous dividend policy.
FY15 was a challenging year for HRG with PBT declining by 15% yet net debt reduced and management felt sufficiently confident to raise the dividend by 5%. With HRG regaining momentum in H2 and appointing a new CFO, confidence is being rebuilt and we expect PBT growth to resume in FY16. The positive sentiment has been reflected in the [ ] share price increase since the release of the prelims in May but the valuation metrics still remain attractive. The FY16 PE rating is 9x, it offers a dividend yield of 3.5% and the free cash flow yield is expected to rise to 13% by FY18. Furthermore, we calculate there is the potential to pay a special dividend in either FY17 or FY18. We have increased our price target from 72p to 90p representing [ ] upside and a PE rating of 12x. We re-iterate our Buy recommendation.
FY15 was a challenging year for the Group with PBT declining by 15%, yet net debt reduced from £65m to £55m and management felt sufficiently confident to raise the dividend by 5%. With HRG regaining momentum in H2 and appointing a new CFO, confidence is being rebuilt and we expect PBT growth, at 7%, to resume in FY16. The positive sentiment has been reflected in the 25% share price increase since the release of the prelims in May but the valuation metrics still remain attractive. The FY16 P/E rating is 9x, it offers a dividend yield of 3.8% and the free cash flow yield is expected to rise to 11% by FY18. Furthermore, we calculate there is the potential to pay a special dividend in either FY17 or FY18 in the range of 4p-11p per share. We have increased our price target from 72p to 90p representing a further 25% upside and a P/E rating of 11.9x based upon our FY17 estimates. We reiterate our Buy recommendation.
IMS confirmation of continued momentum after a clear H215 recovery is encouraging, even if structural pressures persist. Hogg Robinson (HRG) is responding well to a changing corporate travel market, with further good progress in ensuring a suitable cost base, while its enhanced technology offering strengthens its ability to serve the wider travel industry and expense sectors. Despite marked share price outperformance since May’s results, the rating is modest and cash generation (confirmed by the IMS as “strong”) amply underpins management’s progressive dividend policy.
