Several valuation metrics and our sum-of-the-parts analysis suggest that the market undervalues Findel's (LON:FDL) potential. To close the valuation gap, management simply needs to continue on its current path. The increasingly online retailer Express Gifts has resumed growth. Turning around Education will take time in a difficult market, but existing initiatives should see FY18e profits leap. Meanwhile, core net debt remains well controlled and is set to reduce further.
Encouraging signs in a challenging year
FY16 results were in line with consensus and very close to our own estimates. Nevertheless, earnings declined as the group faced a number of challenges, some of them self-inflicted. Express in particular encountered difficulties in tightening credit controls and buying in new categories, both of which dented revenue growth. Meanwhile, the educational supplies market remained difficult as schools’ budgets were squeezed further. Management in both divisions acted during the year to address these and other issues. Encouragingly, Express has delivered solid sales growth in Q416 and so far in FY17, suggesting that it has overcome its problems. Education has shown signs that it can reverse customer losses and is on track to deliver its warehouse rationalisation plan. With core net debt well under control despite abnormally high capex and adverse working capital movements linked to the sale of Kitbag, the group is well positioned to resume earnings growth in FY17.
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