Christmas is coming
Park Group (PRKG.LSE) has issued a trading update on trading for the year to 31 March 2014. Full results are due to be published on 10 June. FY14 is confirmed in line with market (and our) expectations. More interestingly, within the consumer division (c 60% of expected sales) the order book for Christmas 2014 (contributing to the current FY15 fiscal year result) is now largely in place, and is showing encouraging progress (UK order growth of 10%). With the larger part of the corporate division continuing to trade well, the group is well placed to recover from the FY14 headwinds.
FY14 meeting consensus
Investment in the flexecash prepaid card and other e-commerce initiatives has supported growth in a tough consumer and business environment in recent years. However, FY14 saw an unfortunate confluence of yet lower deposit rates on cash balances (a result of the funding for the lending scheme), a particularly weak consumer environment during Park’s peak marketing period in early 2013, and a significant slowdown in that part of the corporate division selling to home collected credit (HCC) operators (who primarily use Park cards and vouchers as customer acquisition tools). The gradual improvement in trading conditions reported with H1 results has continued through the second half and management believes FY14 results will meet consensus.
And recovery underway
Christmas prepayments represent c 90% of the consumer division and c 50% of the group total. Orders for Christmas 2014 (FY15) are largely in place, and ahead 10% in the UK and 3% in Ireland. We expect the direct to customer online business to maintain its fast pace of growth (FY14 +27%). Outside of HCC, corporate division sales increased 7%, and this growth should be more apparent in FY15 as the impact of weak HCC sales falls away. In November, the group announced the launch of its flexecash card in Ireland, demonstrating its ability to expand its e-commerce platform into new territories and markets, and a first step in building a business in Europe.
Valuation: Interest rate beneficiary
With the passing of time, our DCF valuation moves up to 57p while our earningsbased valuation remains unchanged at 55p (12.5x calendar 2014 forecast EPS). The prospective dividend yield of 4.6% is attractive and well supported. Park earns interest on its growing customer cash balances and our earnings would benefit from any increase in interest rates (with 50bp adding c 6% to forecast PBT).
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