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DX (Group) Plc

DX (Group) plc Central hub planning approval declined

DX (Group) plc (LON:DX) has announced that planning approval for its intended new hub at Essington in the West Midlands has been declined for a second time. With the initial planning proposal having been declined last year (18th May 2016) the company had resubmitted an updated proposal. That this new planning application has also been declined is disappointing. However, management had planned for such an eventuality and has a contingency plan in place relating to other suitable and available sites near to the original. The new hub remains central to the One DX strategy and we do not see today’s announcement as fundamentally undermining the potential financial and operational benefits that will be derived. There could be a timing impact but we would hope that this is limited. An alternative site is likely to already have significant infrastructure in place while the proposed site had little. No material change to forecasts on today’s statement as synergies and development costs of the new site had not been included in forecasts.

* Planning consent declined but no impact to forecasts – Today’s announcement is disappointing but not entirely unexpected. With the original application being declined in May 2016 management had taken the decision to resubmit an updated application. However, it had already started to make contingency plans should the application fail for a second time. We would hope to hear shortly on an alternative strategy regarding potential sites. Synergies, and initially costs, relating to the new hub had not been assumed into forecasts. As a result, we leave estimates broadly unchanged, apart from more conservative assumptions regarding capex and working capital in the current year, on today’s announcement believing it a further short term impact to sentiment rather than a material change in the business.

* Valuation – DX (Group) plc valuation reflects the recent profit warning and trades on c.12x FY17 earnings which falls to c.6x in FY18 as forecasts assume PBT recovers to £4.1m from £1.9m.