Proven Park poised for good growth

BUY

05/07/2010 James Crux

Despite recessionary pressures, Park Group, the cash savings-to-vouchers concern, grew profits in both divisions last year.

Proven, profitable, cash generative and unfettered by bank debt, the AIM-quoted venture is winning market share in the corporate vouchers market, while seeing strong recovery in its traditional Christmas savings operations. Keen to extend its product offering, Park has also made an exciting foray into the high-growth pre-paid card market that should boost its financials.

Chaired by founder and major shareholder Peter Johnson, Merseyside-based Park started out in the late 1960s offering a savings scheme to enable consumers to purchase Christmas hampers.

Still with a strong second-half bias, the company has, however, diversified into gift vouchers, and today more than 90 per cent of sales are generated from vouchers. As managing director Chris Houghton stresses, ‘We are not the hamper company (anymore), we are a voucher business.’

Generating sales through agents, its direct sales force and increasingly online, Park delivered impressive annual numbers to March against a backdrop of consumer caution. Operating profits improved by 40 per cent to £4.3 million, on turnover up 5 per cent to £263.2 million, north of analysts’ estimates. Pre-tax profits came in lower at a still-creditable £5.3 million (2009: £6.2 million), with interest on Park’s cash (which incidentally peaked at £120 million) curtailed with rates at rock-bottom levels, while the total dividend was maintained at 1.32p.

On the corporate voucher side, Park sells ‘own brand’ and individual store vouchers to corporate customers (Santander and Provident Financial among them), which use them for incentive schemes and for sale to consumers.

Helping customers reward and incentivise staff in these especially straitened times, the corporate vouchers arm did well last year, with operating profits advancing 13 per cent to £3.2 million. Sales grew 26 per cent to more than £107 million, buoyed by major wins for Park’s ‘Love2shop’ high street gift voucher, which is accepted by more than 85 major retailers with over 20,000 stores across the country. In a milestone development, customer numbers, up 15 per cent, exceeded 5,000 for the first time.

Over in Christmas savings, where vouchers, hampers and gifts are purchased on a 45-week pre-paid instalment plan and where Love2shop is Park’s predominant product, revenues eased off from £165 million to £156 million.

Nevertheless, despite customer numbers being down and average orders remaining flat at £375, Park still achieved a 40 per cent operating profits improvement to £2.8 million as efficiency savings, among them an increase in orders processed over the internet, were driven through. Encouragingly, Houghton insists that the sales campaign for Christmas 2010 is going well, with orders, agents, customer numbers and average order values all running ahead of last year.

In an exciting development, Houghton believes that both of Park’s core businesses will receive a boost from the introduction of Flexecash, Park’s new range of pre-paid cards, redeemable at retailers ranging from HMV, New Look and Argos to Matalan and Debenhams, which all accept Love2shop vouchers already.

Authorisation for this highly complementary product, for which Park already boasts a 2010/11 order book of £9 million, was received from the FSA in March and Flexecash has been launched into the corporate voucher market, as well as being marketed to Christmas savings customers. ‘We’ve been looking at the pre-paid market for quite a while and have invested £3 million over three years,’ enthuses Houghton. ‘But it has given us the opportunity to offer more convenience for our existing customers, and it is opening up new markets for us.’

For the current year, analysts see Park’s profits growing strongly to £6 million, driving earnings per share up from 2.1p to 2.6p per share. This growth should underpin a dividend increase to 1.4p, meaning that the shares, presently selling on a single-figure p/e, offer a bumper yield of 6.8 per cent at current levels. With Park poised for strong growth and forecast upgrades a possibility, they are worth buying and holding for the long-term.

Tags: AIM, Cash, Dividend, Growth Stocks

Sector: General Financial

Companies: Park Group

Proven Park poised for good growth

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