Wilmington Group: Growth Opportunities

H113 results will have reassured investors that Wilmington Group (WIL) continues to benefit from a resilient core business and margin uplift from the restructuring exercise. Short- to medium-term growth opportunities remain in the core Pension & Insurance, Banking & Compliance and Healthcare verticals. The outlook for Legal remains challenging but margins have improved significantly. The FY13 P/E of 12.8x looks up with events and the 4.4% yield is supported by a healthy balance sheet.

Interim Results: Good headline performance
H1 revenue of £40.9m was down 2% (-1% organic) with a strong performance from Pensions (+8%) and Banking (+9%) offset by Healthcare (-8%), Business Intelligence (-4%), Accountancy (-4%) and Legal (-9%). However, EBITA margins benefited (+1.8% to 17.4%) from mix effects and cost savings. Adjusted PBT (+15% to £6.0m) and EPS (+23% to 5.5p) benefited from lower interest costs and tax. Net debt reduced to £34.0m with rolling 12m EBITDA covered 1.9x.

What are the implications?
The Legal training business has long been a drag on the group and the strong margin performance should help settle investor concerns despite the challenging revenue outlook. Elsewhere, the focus on delivering information solutions into narrow industry verticals continues to bear fruit. Margin mix improvements should continue to drive short-term profits growth in the absence of a cyclical upswing. Overseas growth opportunities are an increasingly visible part of the mix and are likely to gain prominence, while the UK market remains weak.

Significant estimate revisions unlikely
Our key take away from the results presentation is that although the headline revenue environment remains challenging, overall trading remains on track. We would not anticipate any significant revisions to estimates; revenue numbers may come back a touch, but will be offset by higher margins and lower finance charges.

Headline valuation up with events; attractive yield
Wilmington currently trades on a FY13 P/E of 12.8x (+9% premium to the immediate peer group) and yield of 4.4% (peer group 3.8%).

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