City round-up: Nichols; Lookers; Surface Transforms; Johnson Service Group; PRS REIT
Vimto maker Nichols, the Newton-le-Willows-based soft drinks group, reported a 14% increase in annual revenues, to £164.9m, in a trading update for the year to December 31, 2022, today, as well as the appointment of Elizabeth McMeikan as its next non-executive chair, replacing current long-standing chair, John Nichols.
The second half period produced a 10% improvement on the same period the previous year, it revealed.
The Vimto brand continued to perform well, with its brand value increasing by 3.4% in the UK, according to Nielsen, as at December 3, 2022. This is broadly in line with the performance of the group’s UK packaged route to market.
In the international packaged route to market, the Vimto brand continued to see strong progress year-on-year, with revenue growth of 15% versus the prior year. Second half performance was 48% up year-on-year, with positive performance in all regions.
The group’s Out of Home (“OoH”) route to market continues to recover from the impact of the pandemic and has seen revenue growth of 43% year-on-year. Second half growth slowed to 5%, reflecting a more normalised trading environment in the prior year comparative period, as well as the widely publicised cost of living pressures.
The outcome of the group’s OoH Strategic Review will be announced with the preliminary results in March 2023, where significant opportunities for net margin improvement have been identified.
Despite ongoing inflationary pressures, which accelerated during the second half, the group expects to report fiscal year 2022 adjusted profit before tax in line with market expectations.
Cash generation remained strong throughout 2022, and cash and cash equivalents at the end of the year stood at £56.3m, compared with £56.7m the previous year.
The group says it has a proven, diversified, and international business model. However, it is not immune to the significant and accelerating inflationary pressures impacting the wider consumer and soft drinks markets. While fiscla year 2023 will be a challenging year as cost of living pressures impact consumer demand across all routes to market, the group said it will continue to seek to mitigate these pressures through both cost efficiency and revenue management. Throughout 2022, this has helped the Vimto brand continue to grow in the UK and internationally, which the board is confident will continue in 2023.
Elizabeth (Liz) McMeikan, will initially join the group as a non-executive director on February 1, 2023, before becoming non-executive chair on April 26, at the annual general meeting.
As announced on April 27, 2022, John Nichols stated his intention to retire as non-executive chairman once a suitable replacement had been identified and appointed. He will, therefore, step down from the role following the group’s 2023 AGM.
Elizabeth brings a wealth of consumer-focused public and private company experience to the board from a number of non-executive board roles, further to an executive career spent with Colgate Palmolive and Tesco.
The group confirms that John Nichols will remain on the board as a non-executive director. John will take the second of the two Nichols family board positions, sitting alongside fellow non-executive director, James Nichols, agreed as part of the Relationship Agreement signed in July 2020.
John Nichols said: “Following a thorough search process, in Liz the nominations committee have identified an outstanding candidate to take over as the group’s next chair. She has significant experience in consumer-facing businesses and public company boards, which I am very confident will be of great value to the group.”
Elizabeth McMeikan said: “Nichols plc is an outstanding business with a proud history and exciting future prospects. I am both delighted and honoured to be given this opportunity to take over as the company’s next chair. I look forward to joining the company and working closely with my new colleagues to contribute to the group’s continued, sustainable success.”
In a note this morning, Singer Capital Markets, recommended the stock as a Buy, saying: “We are impressed with today’s YE update, further reinforcing the resilience of the Vimto brand against a difficult consumer and cost backdrop.
“The OoH strategic review is near complete and will be unveiled at the March finals. We anticipate a robust plan to lift profitability from FY24. There is also good news around succession planning with a new chair appointed.
“Outlook commentary for FY23 is measured but in line with our unchanged expectations of flat PBT, followed by meaningful growth in FY24 as cost inflation subsides and OoH benefits flow through.
“The shares on a 11x EV/EBITDA rating for a branded international soft drinks company with >£55m of net cash (14% of market cap) are undervalued – Buy.
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Mark Raban
Lookers, the Altrincham-based motor dealership, reported a strong performance for the year to December 31, 2022, driven by a strong fourth quarter, in a trading update this morning.
It revealed a further increase in the board’s expectations for underlying profit before tax to greater than £80m (2021: £90.1m, including £9.8m of COVID support).
The group boasts a strong balance sheet with a net cash balance of around £70m, compared with £3m a year ago, and property book value of approximately £297m as at September 30, 2022, combined equivalent to about 95p per share.
Chief executive, Mark Raban, said: “We’ve enjoyed a strong close to the year, outperforming the new retail market, leading to an increase in our full year profit expectations.
“This has been achieved against a context of significant supply chain disruption and unprecedented inflationary cost pressure. Despite a number of ongoing trading headwinds, we have started 2023 confidently.
“Our strong OEM (original equipment manufacturer) relationships, clear strategic priorities, financial capacity and, above all, the commitment of my Lookers colleagues leaves us very well positioned for the future.”
Lookers said trading in the fourth quarter period was ahead of the board’s expectations with underlying profit before tax greater than in Q4 2021.
The UK new retail car market grew by one per cent in Q4 (Q3 2022: -1.5%). The group outperformed the market by approximately 3.1%, benefiting from a strong focus on its operational optimisation strategic priority and omni-channel customer experience. The total UK new car market grew by 22.7% as the continuing impact of semi-conductor supply chain issues begins to ease in some channels.
Quarter four like-for-like used unit sales were 8.6% ahead of Q4 2021, an improvement on the -7.2% decline reported in Q3. Used vehicle margins have remained broadly in line with those reported at the half year and continue to profit from improvements in operational efficiency.
Aftersales revenues grew in the period and were approximately 7.5% ahead of Q4 2021. During Q4 the group maintained customer visits and gross profit margins broadly in line with Q4 2021.
The group previously announced its appointment as franchise representatives for the ORA and Lotus brands. It has now opened oitsORA showrooms in existing properties and its Lotus showroom in Belfast is expected to open in the first quarter of this year.
Lookers continues to develop new OEM relationships to expand its offering and said it will be representing a leading global Chinese EV manufacturer on its entry into the UK market, from existing locations in the North East, South Yorkshire and Northern Ireland. In addition, Lookers will add the iconic MG brand to its brand relationships and will represent MG from its existing site in Worcester.
The board said it is encouraged by the strength of trading in Q4 and the magnitude of its new car retail and fleet order banks entering into 2023. However, it is also conscious of the potential impact on consumer spending by external factors such as high inflation and interest rates.
It said: “We begin the new financial year with confidence in the resilience of our business model and ‘omni-channel’ customer offering, and as such the board’s expectations for 2023 remain unchanged.”
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Surface Transforms
Surface Transforms, the Knowsley-based specialist high performance brakes manufacturer, bemoaned the impact of production problems on its operations, but reiterated it will be profitable this year.
In a trading update for the year to December 31, 2022, the company revealed a 113% increase in revenues of £5.1m, although this is less than previously guided, reflecting some highly specific, but cumulatively significant, production issues at the company in late November and December as volumes were ramped up.
The problem furnaces are now operational but management says it wants to see several weeks of consistent output before being comfortable to confirm that the issue has been permanently resolved. In parallel, and as back up, the company is accelerating additional capacity for these furnaces with the capacity on this process expected to double in the next three months. The company is also implementing a number of increased resources, operational changes and developments to facilitate the Company’s expansion plans, including the recent appointment of a chief operations officer.
While the company was profitable in November, these production issues resulted in the company not being profitable in December.
Gross cash was £14.9m (30 June 2022: £6.7m). Other interest-bearing loans and asset finance totalled £1.2m (30 June 2022: £1.8m). The previously notified £3.1m letter of credit to a furnace manufacturer, has now been satisfied and is no longer a liability.
The company repeats its statement made on November 24, that it expects the planned Phase 2 doubling in capacity to £50m sales pa to be operational in the second quarter of 2023. The increase in capacity is progressive and some critical bottlenecks are expected to be relieved earlier than this. The implementation of Phase 3.1 capacity increase to £75m pa sales is also on plan, with more than £3m of equipment orders – with deposits – placed since the fundraising and the remainder of the project at advanced stages of commercial discussions.
While acknowledging the significant impact these production issues had in December, management is encouraged by production levels in recent weeks and, consequently, the company is not changing its guidance for 2023 and will be profitable.
Chief executive, Kevin Johnson, said: “It is most frustrating to again be reporting a production problem impacting our previous guidance.
“The core issue is not the technical problems themselves, but the lack of capacity to provide headroom when they occur. Technical problems are part of the learning curve arising from a tenfold increase in production rates, the key is to ensure that we have spare capacity to recover the lost production after the problem has been solved.
“The installation of Phase 2 capacity by Q2 will enable the company to get ahead of the continuingly strong customer demand and then, with completion of Phases 3.1 and 3.2 capacity increases in the following two years, to stay there.”
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Runcorn-based workwear and hospitality industry textile business, Johnson Service Group, said trading continued to improve during the second half of 2022, and it expects to announce full year revenue of approximately £385m, up from £271.4m the previous year, in a trading update today.
Revenue in the workwear business is expected to be £134.5m and in HORECA (hotel, restaurant and catering), £250.5m. On an organic basis, revenue is expected to have increased by almost 40% on 2021 levels and, on the same basis, be 2.6% higher than the pre-pandemic revenue posted for 2019.
HORECA volumes have increased slightly and were over 93% of normal in the final quarter, helped by the installation of new customers during the second half.
While cost inflation remains a challenge, the group continues to take appropriate actions to mitigate the impact. It has also traded further in the energy market, such that some 65% of its anticipated gas requirement and 55% of anticipated electricity requirement for 2023 is now fixed.
Year end net debt, excluding IFRS 16 liabilities, is expected to be approximately £14m. The share buyback programme announced in September is ongoing with £5.6m of cash utilised as at December 31, 2022.
The full year outturn is expected to be in line with current market expectations, and full year results are expected to be announced in March 2023.
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PRS REIT, the Manchester private rented sector housing group, published an update for its second quarter period, including Christmas, when it said 57 new rental homes were added to the portfolio.
This took the number of completed homes added to the company’s portfolio during the first half of the financial year to 127 and the total number of completed homes in the portfolio to 4,913 as at December 31, 2022. The delivery programme is now at a very mature stage, approximately 85% complete.
The estimated rental value (ERV) of the 4,913 completed homes in the portfolio is £50.7m per annum, some 17% higher than a year ago – December 31, 2021: 4,489 homes with an ERV of £43.5m per annum.
A further 613 homes were contracted as at December 31, 2022, and are at varying stages of the construction process. Once these new homes have been completed, the ERV of the portfolio is expected to total c.£57.3m per annum.
Rental demand for the company’s homes remains extremely strong. Occupancy at December 31, 2022 stood at 97% with 4,788 of the 4,913 completed homes occupied. A further 44 homes were reserved for applicants who had passed referencing and paid rental deposits, giving an occupancy rate of 98%. Like-for-like rental growth on an annualised basis was 5.7%.
Rent collection – defined as rent collected in the period relative to rent invoiced in the same period – was strong at 98%. Total arrears remained low at £0.7m at December 31, 2022 (December 31, 2021: £0.4m), representing around one per cent of annualised ERV on completed units. Affordability remains strong, with average rent as a proportion of household income at c.25%, which is significantly ahead of Home England’s 35% target.
Miranda Cockburn, an analyst with investment bank Panmure Gordon, said: “PRS REIT’s Q2 trading update highlights continued progress with completions and strong rental demand. Importantly in the current climate the homes remain affordable.
The shares have had a weak start to the year down c.six per cent compared with the UK REIT sector up three per cent. At 83p they are trading on a 27% discount to current NAV and offer a 4.8% dividend yield which looks good value given the underlying demand for the product and we retain our Buy rating.
