The company has posted better than expected FY20 results, with net cash closing July at a robust £27.3m (pre IFRS16 lease liabilities & including the benefit of £13.8m non-recourse off balance sheet financing) compared to -£24.8m LY (ED Est £20m). Driven by £10.3m of deferred VAT payments (payable Apr’22), improved contractor terms (£8.5m - permanent), a working capital unwind (£16.3m) & lower debtor days (41 vs 45 LY).
This leaves the business ‘covenant free’ & ideally placed to increase profits as the recovery gains traction. With a high proportion of incremental NFI falling straight to the bottom line, due to continued tight cost control (£4m annualised savings), more efficient processes (Improvement Plan) and positive operating leverage.
FY20 NFI & adjusted PBT both declined -21.4% and -60.7% respectively to £54.3m (£69.1m LY) and £4.6m (£11.6m). Reflecting uncertainties created by the General Election, Brexit, proposed new IRS35 rules and latterly the pandemic (including a prudent £2.3m bad debt provision). Partly offset by a 13% contraction in overheads, thanks to restructuring (£1.7m), lower headcount (665 vs 739), furlough assistance (£1.5m) and a temporary group-wide 20% salary cut (£1.1m).
We have held our FY21 numbers - corresponding to trough adjusted EBIT and EPS estimates of £1.25m and 1.1p. With most of the heavy lifting already completed, and assuming things go to plan, we raise our valuation from 130p to 140p/share.
