Findel (LON:FDL)'s attractive online-led value retail proposition is continuing to deliver impressive results. With the mandatory offer by Sports Direct (LON:SPD) having lapsed, FDL has issued a post-close update confirming a strong trading performance in Q4 in both Studio and Education and expectations for FY19 PBT to slightly exceed market consensus of £27–28m. We upgrade our PBT forecasts by 6% for FY19 and 1% for FY20. Given recent share price weakness, our unchanged valuation of 348p is twice the current share price.
Post-close: Beating current market expectations
Studio continued to trade strongly in the fourth fiscal quarter. Categories that performed particularly well included garden ranges, boosted by good weather in early February, and homewares. Similarly, education enjoyed a solid final quarter with an acceleration in customer recruitment and ongoing improvement in online ordering levels. Management expects FY19 pre-tax profits to slightly exceed the current market consensus of £27–28m (we estimated £27m before the update). Core net debt at the end of March was c £57m, marginally below our forecast of £58.5m. This represents a c £17m reduction in core net debt year-on-year.
Forecasts: 6% FY19e earnings upgrade
We upgrade our underlying PBT forecast by 5.6% for FY19e, mainly reflecting a strong sales performance and continued margin improvement in Studio across the year. We further upgrade our FY20e PBT forecast by 1.0%, representing year-on-year earnings growth of 3.5%.
Valuation: 100% upside given share price weakness
Since the start of November the share price has fallen 45%, from an undisturbed price of 250p (before the sale of stakes representing 24.1% of FDL’s issued share capital by Toscafund Asset Management and City Financial Investment Company, for reasons unrelated to their views on the company). This decline appears unjustified given the strength of trading and ongoing reduction in core net debt. At this stage we make no change to our blended valuation of 348p, which is now twice the current share price. In our view, minimal take-up (representing only 0.01% of FDL’s issued share capital) of the recent unsolicited mandatory offer by Sports Direct at 161p highlights ongoing support for the strategy and future growth prospects.
Business description
Findel is a multi-channel retailer operating across the business-to-consumer and business-to-business market places. It is a market-leading online value retailer and educational resource supplier in the UK.
