Walker Greenbank: Another Good Year

Walker Greenbank (WGB.L) continues to defy the challenging UK consumer trading climate. Increased overseas sales, especially into North America, and higher licensing income are helping to sustain the momentum, while the benefits of margin improvement are coming through to the bottom line. The share price has responded positively since the interims last autumn and again following this morning’s announcement, but is only beginning to reflect the group’s consistent trading performance.
Another good year
The profits target we set at the time of the interim results announcement is, as we suspected, proving conservative, despite the tough UK consumer trading climate. While revenues are reported to be just 2.3% ahead of last year, higher gross margins supplement the reduced overhead base, enabling management to indicate profits above City expectations. We are raising our underlying pre-tax target by £0.3m to £6.2m, implying a year-on-year rise of some £0.5m.

Investment continues
This performance reflects the consistent investment strategy of management. New collections have been regularly introduced across the brand portfolio throughout the recession to stimulate customer interest, while the capabilities of the manufacturing operations have been progressively extended, developing the techniques to offer wider opportunities to the group and third-party design teams. We have nudged our 2013/14 target higher, although because of the continuing challenging trading climate, we prefer to remain conservative. We continue to look confidently to the future.

Clean balance sheet
The trading statement does not refer to the balance sheet. We indicated in our October report that we expected group net borrowings (£2.7m at July 2012) to be eliminated by January 2013. On the basis of the better-than-expected cash flow, this target should be delivered with something to spare.

Valuation: Stay on board
Ahead of the announcement, Walker Greenbank’s share price had risen by 14% since our October report. However, the prospective rating remains below that of other high-end global consumer goods groups. Colefax is currently valued at 13.0x EPS for the year to April 2013, while the much larger Burberry Group is valued at 21.9x. It is still far too early to consider taking profits, especially with any benefits of the recent brand introductions (Scion; Sanderson Home) still to come through to profits.

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