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.
aluation: Winning back trust
Despite recent share price strength and understandable caution ahead of greater evidence of HRG’s ability “to get ahead of the curve”, its FY16e P/E rating is low (under 10x) compared with that of the FTAS UK Support Services sector (c 17x). While this challenge is being met, we reiterate that HRG is securely funded (substantially to 2018), highly cash generative and committed to a generous dividend policy
Favourable translation drives our upgrades for this year and next (our previous PBT forecasts were respectively £34.0m and £34.5m). Otherwise our adjustment is only for greater caution about Europe and Fraedom (short-term investment impact) offset by a stronger pickup in North America and Asia-Pacific.
Notwithstanding market pressures, HRG’s success in delivering on key objectives and consequent proximity to potentially transformative opportunities (eg stepchange growth at Fraedom) are not being recognised in current valuations. The FY17e P/E rating is low (under 9x) against that of the FTAS UK Support Services sector (c 14x), while there is commitment to a progressive dividend (up 8% in FY16). Volatility in the pension deficit (up sharply in the half but then falling) largely reflects lower bond yields and the current payment plan is in place until 2017.