Hogg Robinson Group — Update 1 August 2016

Hogg Robinson Group — Update 1 August 2016

Hogg Robinson Group

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Hogg Robinson Group

Tried and tested

IMS

Support services

1 August 2016

Price

65p

Market cap

£212m

Net debt (£m) at March 2016

33.6

Shares in issue

325.4m

Free float

52%

Code

HRG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.4)

(5.1)

(5.1)

Rel (local)

(10.0)

(11.1)

(6.0)

52-week high/low

76.0p

58.8p

Business description

Hogg Robinson is an international corporate services company, specialising in travel, expenses and data management.

Next events

Interim results

November 2016

Analysts

Richard Finch

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Hogg Robinson Group is a research client of Edison Investment Research Limited

IMS confirmation of Q1 trading resilience is backed up by reassurance that Hogg Robinson (HRG) is in good shape to weather potential Brexit uncertainty. Strong finances, a fast-developing Fraedom technology business and increasing benefits from corporate restructuring should mitigate market pressures, while in a downturn HRG has been seen to benefit from a corporate desire to use professionals to cut travel costs. We reiterate that low net debt (FY17e net debt/EBITDA of just 0.5x) allows for profitable investment and returns to shareholders.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

330.1

30.5

6.6

2.32

9.8

3.4

03/16

318.3

32.2

7.2

2.51

9.0

3.8

03/17e

326.0

34.0

7.3

2.65

8.9

4.1

03/18e

321.0

34.5

7.4

2.80

8.9

4.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

More of the same in Q117

HRG is on course to meet market expectations for the current year after an opening quarter to June much in the vein of H216, ie relatively subdued travel management (revenue -3% in constant currency) offset by Fraedom’s buoyancy. While our full-year PBT forecast is unchanged, it now assumes greater caution in travel management, given a broadly similar outlook, compounded by possible Brexit softening, of which there are very early signs. We look now for divisional revenue to continue to decline at that rate but at maintained margin, thanks to effective cost control in FY16 and guidance of £8m further savings from reorganisation. Favourable currency movements should make good the consequent profit shortfall. We remain confident that Fraedom will deliver c 20% trading profit growth.

Fraedom to surprise?

Our newly introduced forecasts for FY18 closely reflect the aforementioned trading pattern, albeit without the significant currency benefit in FY17e. We believe that the joker in the pack is HRG’s enhanced financial flexibility (we forecast net debt at end March 2018 of merely 0.3x EBITDA), which would allow a material expansion of the technology offering, already the driver of HRG’s growth.

Valuation: Strong cash flow underrated

Continuing evidence that travel management, HRG’s principal activity, remains under pressure highlights the challenge it faces adjusting to a changing market. While this is being resolved, investor caution is reasonable. However, the FY17e P/E rating is low (under 9x) compared with that of the FTAS UK Support Services sector (c 14x) and the company is only modestly indebted, highly cash-generative and committed to a progressive dividend (+8% y-o-y and 2.9x income cover in FY16).

Exhibit 1: Financial summary

£'000s

2015

2016

2017e

2018e

Year-end March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

330,100

318,300

326,000

321,000

EBITDA

 

 

53,400

55,500

57,500

58,000

Operating Profit (before GW and except)

 

 

42,500

44,800

46,500

47,000

Exceptional Items

(6,300)

(4,800)

(2,000)

(2,000)

Amortisation of Acquired Intangibles

(1,000)

(700)

(1,000)

(1,000)

Associates/JVs

1,100

1,000

1,000

1,000

Operating Profit

36,300

40,300

44,500

45,000

Net Interest

(13,100)

(13,600)

(13,500)

(13,500)

Profit Before Tax (norm)

 

 

30,500

32,200

34,000

34,500

Profit Before Tax (FRS 3)

 

 

23,200

26,700

31,000

31,500

Tax

(7,500)

(7,400)

(7,800)

(8,000)

Adjustment to tax for normalised earnings

(800)

(1,000)

(1,700)

(1,700)

Profit After Tax (norm)

23,000

24,800

26,200

26,500

Profit After Tax (FRS 3)

15,700

19,300

23,200

23,500

Minority charge

(1,000)

(600)

(600)

(600)

Average Number of Shares Outstanding (m)

322.7

324.2

325.4

325.4

EPS - normalised (p)

 

 

6.57

7.16

7.34

7.44

EPS - FRS 3 (p)

 

 

4.56

5.77

6.95

7.04

Dividend per share (p)

2.3

2.5

2.7

2.8

EBITDA Margin (%)

16.2

17.4

17.6

18.1

Operating Margin (before GW and except.) (%)

12.9

14.1

14.3

14.6

BALANCE SHEET

Fixed Assets

 

 

304,500

305,400

305,000

303,000

Intangible Assets

236,800

242,100

240,000

238,000

Tangible Assets

9,800

8,800

9,000

9,000

Investments

57,900

54,500

56,000

56,000

Current Assets

 

 

145,800

139,000

146,000

154,000

Stocks

0

0

0

0

Debtors

105,500

93,300

96,000

99,000

Cash

38,400

43,800

48,000

53,000

Current Liabilities

 

 

(167,700)

(159,500)

(165,000)

(188,000)

Creditors

(167,600)

(149,500)

(150,000)

(148,000)

Short term borrowings

(100)

(10,000)

(15,000)

(40,000)

Long Term Liabilities

 

 

(355,400)

(334,800)

(322,000)

(291,000)

Long term borrowings

(93,000)

(67,400)

(60,000)

(30,000)

Other long term liabilities

(262,400)

(267,400)

(262,000)

(261,000)

Net Assets

 

 

(72,800)

(49,900)

(36,000)

(22,000)

CASH FLOW

Operating Cash Flow

 

 

39,900

48,100

42,500

42,000

Net Interest

(4,300)

(4,200)

(4,000)

(3,700)

Tax

(4,000)

(5,400)

(9,000)

(6,000)

Capex

(11,300)

(8,300)

(12,000)

(12,000)

Acquisitions/disposals

0

0

0

0

Financing

(2,600)

(1,400)

(2,600)

(1,600)

Dividends

(7,100)

(7,700)

(8,300)

(8,700)

Net Cash Flow

10,600

21,100

6,600

10,000

Opening net debt/(cash)

 

 

65,300

54,700

33,600

27,000

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

54,700

33,600

27,000

17,000

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Hogg Robinson Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Hogg Robinson Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Industrials

Cohort — Update 30 July 2016

Cohort

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