Strong H2 across the board
Creston Plc's (CRCRE.LSE) year-end trading update indicates that – as expected – the group had a good H2, with the improved H1 new business performance starting to deliver. H214 revenues were 3% up on H213 and 10% ahead of H114. Cash performance has been slightly better than we were anticipating and the group ended the year with cash of £7.5m. The route map for the new board structure is in place, with new CFO, Kathryn Herrick, formally taking over in July. Creston’s share valuation remains at a substantial discount to its peers, which we would expect to close as the growth strategy is clarified and expectations for financial performance are met.
New board line up takes shape
The board transition is part-way through, with the former CFO now in place as CEO and the new CFO starting shortly. The non-exec chairman, David Grigson, who has been a director since November 2009 and has overseen the transition process, will retire at September’s AGM and a further independent director will be appointed. Barrie Brien, formerly CFO, has officially now taken over as CEO, while the appointment of new CFO, Kathryn Herrick, was announced earlier this month. She comes from a finance background in both tech and media sectors and joins from Equinix, a Nasdaq-quoted global technology firm providing carrier-neutral data centres and internet exchanges. Her earlier career included spells at WPP and Interpublic, while she also has client-side perspective from her time at PepsiCo.
H114 new business comes through
The statement itself is brief (as normal at this juncture), with revenues in line with our forecast and PBT indicated as in line with consensus (slightly ahead of our number). The cash performance, though, has been better than anticipated, with tight control of working capital leading to higher operating cash flow conversion. The group is continuing to perform well across the operations, with a steady flow of new business. We expect there to be more detail on this with the finals in June.
Valuation: Discount remains substantial
The share price remains at a substantial discount to the sector of 35% on a calendarised 2014 P/E and 31% on EV/EBITDA, which is primarily a reflection of the current earnings plateau. Clarity on the strategy for moving profits and earnings ahead and delivery against market expectations, as well as a continuing strong net new business win position, will help close the valuation gap.
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