DWF Group plc (LON:DWF) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Q1: DWF Group have released their first half results for the six months ended 31st of October, can you just talk us through the key points?
A1: So, the company announced a very solid trading update for the first half of the year. Revenue growth was about 14% and that reflected their reassuring recovery and activity close to levels we saw pre-COVID which was good. Underlying business also returned to growth and there was also a good positive contribution from acquisitions such RCD last year as well, and also Mindcrest.
The decisive cost reduction initiatives were also bearing fruit in this update as well and we’ve seen good margin improvement so the cost income ratio continues to improve and that really drove an impressive 25% growth in EBITDA year-on year.
So, a combination of factors really, which is delivering the strong growth at the moment.
Q2: Has this meant that you’ve changed your focused in any way?
A2: No, so clearly the underlying signs are encouraging but we decided to leave our forecast unchanged at the moment, just given the uncertainty we’re seeing across the economy at the moment. We will have a good look at those assumptions when they report their H1 results in December and hopefully we’ve just got a little bit more clarity as well.
Q3: How is the balance sheet looking at the moment?
A3: Yes, balance sheet is looking good so that continues to come down, don’t forget, there’s about £12 million of acquisition consideration paid in the period so I think the fact that we see net debt of about £59 million, which was a£ 6 million reduction from the year end, we felt was a good sign.
Lock-up days, managing those is a key strategic priority for the group and it was also pleasing to see some good progress being made there as well, which should help the cash generation.
Q4: Finally, just in terms of valuation, how do you see DWF Group?
A4: Valuation, to us, looks attractive, particularly I think given the commentary that we seeing on trading at the moment. So, stocks trading on about 12 times April ‘21 earnings falling to 9.6 in 2022, EV/EBITDA of 8.6, falling to 7.1 and we’ve got a dividend yield this year of about 5.8 which we think will increase to 7.3 to April 2020. So, it looks attractive to us in the context of its growth but also its peers.
