DWF Group “significant long-term upside” says Zeus

DWF Group plc (LON:DWF): A record year of strategic progress

¨ FY22 Results: Results were well flagged at a trading update in May. Net Revenue of £350.2m is +3.6% YOY, with LFL growth of 7%. Adjusted PBT of £41.4m is +21.1% YOY reflecting a 170bps increase in PBT margin to 11.8%. Adjusted EPS of 10.7p was +45% YOY, delivering sector leading growth in profitability, reflecting strong progress made in operating efficiencies. DPS of 4.75p is progressive, +5.6% YOY (FY21A: 4.5p) but below our estimate of 5.9p. Net debt of £71.8m is £11.6m higher YOY, driven by catch up payments of COVID-19 VAT deferrals as well as acquisition related payments totalling £14m. Leverage of 1.08x is higher than prior year (FY21A: 1.04x) due to the benefit of COVID-19 deferrals which have no unwound.

¨ Capital efficiency: The Group has delivered further improvement in working capital efficiency with lock-up days falling to 179 days (FY21: 184 days). This compared to our forecast of 180 and medium-term target of 170 days.

¨ Resilient end markets: We believe over half of DWF’s revenue is generated from insurance and less cyclical areas of law and business services, where demand is more stable than in transactionally focused verticals such as corporate law, which should minimise earnings volatility through the cycle.

¨ Differentiated global model: DWF continues to grow its international footprint through affiliations and associations, with three such agreements announced year to date (NGA, RTS and Hauzen). With the Group’s transformation plan well executed, there is increased focus on potential M&A with a healthy pipeline of opportunities under consideration. The legal services sector remains highly fragmented with significant scope for further consolidation.

¨ Current trading/ outlook: The Group remains confident in its medium-term guidance of delivering robust growth, strong cost control and efficient working capital management. Balance sheet leverage is within its targeted range, which could lend itself to further M&A activity for the appropriate transactions. The Group is mindful of more challenging macro economic conditions, albeit remains confident due to its defensive model and strong position in areas such as litigation and Insurance.

¨ Forecasts: We are maintaining our headline FY23 and FY24 earnings forecasts following these results. We revise our DPS and net debt assumptions to reflect FY22 results. We also introduce our FY25 forecasts for the first time, which now shows a 4-year EPS CAGR of 14.7%, which we believe is compelling, based on conservative medium-term targets.

¨ Valuation considerations: DWF Group currently trades on 8.9x FY23 P/E falling to 8.3x in FY24 and 7.7x in FY25. This continues to represent a discount to the sector despite delivering on its strategy, sector leading EPS growth, above average yield and improving working capital management. Our valuation per share is 154.3p based on a number of techniques from DCF, SOTP and derived peer analysis (see Exhibit 7 for detail). We continue to believe DWF can deliver PBT of c£75m which translates to EPS of 17.3p and an implied equity value of £843.8m or 259.3p per share, applying a P/E of 15x. Overall, we see significant long-term upside to DWF at this juncture and believe the potential rewards of ongoing strategy execution continue to significantly outweigh any potential risks.

Summary financials

Price99.0p
Market Cap£322.1m
Shares in issue325.4m
12m Trading Range87.0p– 130.0p
Free floatc.30%
Next EventAGM Trading Update September

Financial forecasts

Yr end Apr (£’m)2022A2023E2024E2025E
Revenue350.2378.9400.1415.3
y.o.y growth (%)3.68.25.63.8
EBITDA66.771.476.280.4
Adj. EBITDA53.959.464.268.4
Adj. PBT41.446.651.755.8
EPS (p) ful dil. adj10.711.211.912.9
DPS (p)4.85.666.4
Net debt/ (cash)71.862.951.538.6
P/E9.38.98.37.7
EV/EBITDA7.36.55.85.3
Div Yield (%)4.85.666.5
Source: Audited Accounts and Zeus Capital estimates, EV/EBITDA excludes impact of IFRS 16
Click to view all articles for the EPIC: ,
Or click to view the full company profile:
    Facebook
    Twitter
    LinkedIn
    DWF Group Plc

    More articles like this

    Fintel plc

    Fintel core revenue growth is higher than Zeus forecast

    Fintel plc (LON:FNTL), the leading provider of Fintech and support services to the UK retail financial services sector, has released a trading update for the six months to 30 June 2022, which reveals: Core revenue grew

    OnTheMarket Plc

    OnTheMarket analyst Zeus confident in forecasts

    Foxtons, one of London’s leading estate agencies with more than 50 interconnected branches across London, has signed an agreement to advertise its UK residential sales and letting properties at OnTheMarket plc (LON:OTMP). Zeus view: Foxtons, the

    SpaceandPeople analyst Zeus restores estimates and valuation

    SpaceandPeople plc (LON:SAL) secures, sells, and manages flexible space for brand experiences, short term promotions and retailing in high footfall venues for its customers, including in shopping centres and travel hubs. The Group has issued a

    Lookers Plc

    Lookers shares are still undervalued says Zeus

    Lookers plc (LON:LOOK) has released an H1 trading update reporting a continuation of strong performance year to date. H1 2022 underlying PBT is expected to be c. £45m and Management anticipate full year PBT will also

    Inchcape

    Inchcape performance exceeding expectations says Zeus

    Inchcape plc (LON:INCH) has released another positive trading update, with performance exceeding expectations so far this year. This follows on from a positive Q1 update on 28 April. Through quarterly improvement in Distribution volumes and operating

    boohoo Plc

    Boohoo Group analyst Zeus sees a strong performance in Q1

    ¨ Q1 financial highlights: Boohoo Group plc (LON:BOO) revenue of £445.7m is -8.3% YOY vs. a strong comp (Q1 FY22 revenue +32.1%), in line with Zeus’s forecast and management’s previously stated guidance. Gross sales growth remained

    AssetCo plc

    AssetCo performs better than forecasts says Zeus

    AssetCo plc (LON:ASTO) has just completed its acquisition of River and Mercantile Group “RMG”, which has resulted in an increase in shares in issue from 8.4m to 14.4m. RMG has an “established and well-respected equities team