Northland Capital partners view: Positive pre-close with a small outperformance against our expectations at the top, bottom and net debt lines. The year conformed to the usual seasonal pattern with the bulk of revenue, profit and cash collection happening in the second half and final quarter. 2015 has benefited from the adult colouring book phenomenon and the outperformance of the Ivy Press since acquisition but the core publishing businesses are performing well in general. Quarto is one of the world’s largest publishers of illustrated non-fiction titles with a substantial base of enduring intellectual property (IP) and an international publishing/distribution platform. This IP base generates long term cashflows that are reinvested in the portfolio (publishing c. 600 books per annum), provides funding for backlist-rich acquisitions, reducing the debt built up through the initial buy-and-build phase and a dividend income stream. The Children’s Publishing and Foreign Rights sales offer good organic growth opportunities and the sector remains fragmented providing further acquisition opportunities.
| Strong performance in core publishing results in FY15 beat | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| n Strong performance in Quarto’s core publishing businesses in the final quarter means it should exceed expectations for FY15. Quarto’s market-leading presence in the adult colouring book category, particularly in North America, and the better than expected performance of the Ivy Press since acquisition (February) are singled out.
n Good cash conversion meant net debt also came in better than our forecast at $59.7m (NCPe: $60.7m) and represents a 9.5% reduction over FY14 and more than 25% since 2012. Q4 is Quarto’s crucial trading period and net debt reduced $20.3m (25%) in the final quarter and by $21.3m (26%) in H2. The ongoing reduction in debt has lowered interest charges whilst the company maintains its investment in its portfolio and makes bolt-on acquisitions. n Our FY15 PBT forecast was in line with consensus and hence we make small upgrades at the top and bottom line and reduce our FY15 net debt level. We leave FY16 and FY17 forecasts unchanged at this stage. We maintain our BUY rating and 350p price target. FY results scheduled for 17th March. |
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Source: Northland Capital Partners Limited. * Northland Capital Partners provides commissioned research coverage to Quarto.
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