The pre-close trading update for FY22 is evidence of a business determined to deliver. The focus is now on revenue generation and shorter investment payback periods. Two factors proved disruptive to activity levels in FY22; the war in Ukraine and lockdowns across China to prevent the spread of Covid-19. Although the former looks set to continue indefinitely, the re-opening of the Chinese economy represents a positive factor for FY23 onwards.
Cash levels will be boosted as the supply chain relaxes post-lockdowns, enabling the Group to reduce inventory levels, and marketing expenditure is likely to decline. Billi is integrating well into the Group following its acquisition in December, with new products launched and distributors appointed in Asia. We have left estimates unchanged for FY23 and FY24.
We reduced our dividend estimates in early December, reflecting the level of indebtedness but this still suggests a highly attractive yield of 7% for FY22, rising to 7.6% in FY23. We have left those estimates unchanged, as the c.£23m guidance for PAT and consider it too early in the year to revisit FY23 and FY24 estimates. Our net debt estimates are higher than the recent £89m guidance, although c.80% of the difference reflects the payment of deferred consideration to LAICA switching to February ’23.
Although the share price is off the lows recorded in late 2022, there remains a significant gap between the current share price and our fair value - the combination of our DCF & peer group comparison models suggest a fair value / per share of 234p, materially above yesterday's closing price.
