DWF Group “organic growth returning back to positive territory” says Zeus Capital


DWF Group plc (LON:DWF) has announced solid trading for H121. Group revenues were well flagged and slightly higher than indicated +15% YOY with activity levels returning to pre-Covid norms and decisive cost management delivering a 23% improvement in H1 PBT YOY.

  • HY21 results:  H1 results for the period ended 31 October were well flagged on 5 November, albeit with net revenue slightly higher at 15.4% vs. the c14% flagged. Within this, organic growth was 3% with activity levels approaching pre-COVID-19 norms. Gross margins were -80bps at 49.6% YOY, albeit adjusted EBITDA was +17.1% ahead at £24.7m driven by the cost income ratio continuing to decline (40.4% vs. 41.7%).  Adjusted PBT was £13.4m and compared to £10.9m last year and was broadly in line with the FY 20 performance at £13.8m.
  • Balance sheet: Net debt at the end of the period was £58.5m and reflects a reduction of £6.4m vs. the year end. The net debt figure YOY is £9m higher due to £12.4m of consideration paid in relation to the acquisitions of RCD and Mindcrest. FCF generation was £19.6m and compares to the £9.2m outflow last year, albeit there is a benefit of cost deferrals in this number. The year end net debt position is expected to be flat YOY with further deferred considerations expected to flow through in H2. Reducing leverage will remain a key priority for the Group, and in the near term this is expected to be delivered by growing profitability and holding net debt firm
  • Outlook: The Group appears to have adapted well during the November lock down and is achieving progress against the strategic objectives set by the Board earlier this year. Revenue growth has been strong and it’s good to see organic growth returning back to positive territory. The decisive cost measures are also bearing fruit and have allowed DWF to deliver a robust H1 performance, which is broadly in line with the FY position last year in PBT terms. Whilst there are clear uncertainties at present, DWF is making good progress and a more settled economy could well allow this to accelerate next year. In the meantime, we believe the tone of “increasing confidence” is an encouraging stance to take in the current environment.
  • Forecasts & Valuation: We have revised our forecasts to reflect H1 divisional mix and a better than expected gross margin performance. This is offset by a more cautious view on cost to income ratio and higher interest charges for the year leaving our PBT forecasts broadly unchanged. At last night’s close DWF Group trades on an FY21E P/E of 12.2x falling to 9.8x in FY22E, a notable discount to its peer group average of 18.7x with a sector leading prospective dividend yield of 5.7%.
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