DWF Group “a stable platform on which to grow” says Zeus Capital


Post DWF Group plc (LON:DWF) results we consider key takeaways from the presentation and introduce our FY23 forecasts for the first time. YTD trading shows a clear recovery with the full benefit of operational gearing still to come through. We are confident that recent initiatives to streamline operations have left DWF with a strong and better managed platform on which it can deliver significant future growth.

  • Strong momentum seen in Q1 FY21: Trading YTD is encouraging with progress made across all key performance metrics and a strong pipeline of future work. Q1 FY21 revenue of £84.3m is up 20% YOY including 5% organic growth with revenue per partner improving 6% YOY to £228k. Notable improvement in the cost to income ratio, which fell to an average of 38.7% in Q1, an impressive 7 ppts lower than the comparative prior year period, has resulted in a material uplift in Group profitability in the first quarter. Underlying adjusted EBITDA (pre-IFRS 16 basis) of £9.7m is +145% YOY with Underlying adjusted PBT of £7.4m +231%. This means that YTD the Group has already delivered over 50% of the full year FY20A PBT with this momentum being carried into Q2.
  • Platform to drive significant profitable growth: We believe steps taken to rationalise the Group, with underperforming business discontinued and operations streamlined, has created a stable platform on which to grow. This is reflected in the solid trading momentum seen year to date and the impressive improvement in cost to income ratio. On initiation we illustrated a blue-sky scenario that saw the Group reaching c.£100m in EBITDA over the medium term. Whilst some operational challenges and the unprecedented disruption resulting from Covid-19 has pushed this trajectory out, we believe there is a clear track to the Group achieving c£75m in EBITDA, with notable upside potential from cross selling, further productivity gains and potential M&A activity.
  • Forecasts: Our headline FY21E and FY22E are largely unchanged, albeit with some minor adjustments resulting from a shift in divisional mix. We have also introduced FY23E forecasts today, taking a conservative view on top line revenue growth and cost to income ratio expansion with the potential for management to outperform. Exhibit 6 below presents a summary of changes. 
  • Valuation: We believe DWF Group’s value is undemanding versus its UK listed peers (summarised in Exhibit 7), trading on 10.3x FY1 P/E falling to 8.3x in FY22. The Group has reaffirmed its commitment to its stated dividend policy of distributing up to 70% of earnings to shareholders, with a final dividend of 0.75p announced in its final results release. This translates to an attractive forwards yield of 6.8%, rising to 8.5% in FY22E based on our forecasts.
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