Firming up
IMS confirmation of maintained expectations for the full year is reassuring in the face of continued market pressures and after H1 earnings disappointment. Not only is Hogg Robinson Group Plc (LONDON:HRG) making the most of mixed conditions, it is also delivering on restructuring, which will be key to success in a changing industry. Our maintained forecasts reflect a company that is securely funded, highly cash generative and committed to a generous dividend policy (FY15e cover of 2.7x).
HRG is on course to meet current-year earnings expectations. In the four months to January trading was much as in H1 with patchy demand, notably in Continental Europe and Asia, and any growth in constant currency revenue (2%) presumed again to be largely attributable to the new and as yet unprofitable government of Canada contract. However, encouragingly “good progress” is being made with restructuring to deal particularly with a rapid adoption of client online self-booking and aggressive competitor pricing. The new business pipeline remains healthy, as does the scope to expand relationships with existing clients, such as the UK government, Volkswagen in Europe and Novartis in the period.
Although the FY15 P/E rating is low (under 8x) compared with that of the FTAS UK Support Services sector (16.9x), investor caution may continue to be in order until HRG shows its ability “to get ahead of the curve” in a changing market and renew its hard-won reputation for earnings resilience.
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