Walker Greenbank – back on the dividend list

Luxury interior furnishings group Walker Greenbank is benefiting from its hefty brand investment against a backdrop of improving markets.

Though recession briefly halted its progress, the wallpapers-to-woven fabrics specialist is now seeing strong customer restocking, with sales of its brands even exceeding pre-recession levels.

And despite returning to the dividend list at the full year and establishing a track record of over-delivering, its shares trade on a single-figure p/e ratio and should shortly earn a rerating.

With origins, as an engineering business in fact, dating back to 1899, AIM-listed Walker Greenbank designs, makes, markets and distributes wall coverings and furnishing fabrics for the consumer market. Its four brands – Harlequin, Sanderson, Morris & Co and Zoffany – are targeted at the middle to upper end of the premium market.

Under the guidance of astute CEO John Sach, Walker Greenbank has cut costs while improving manufacturing efficiency and investing heavily in its brands. The benefits of these actions shone through in stellar financials for the first half to July, with ‘normalised’ pre-tax profits powering ahead from £900,000 to just under £2.1 million, on turnover up 15.6 per cent to £33.7 million. Sales across all brands increased, with revenues exceeding levels seen before the recession struck.

Driving growth, besides investment in new designs and manufacturing, was the continuing success of mid-market brands Sanderson, now in its 150th anniversary year and where sales were up 17 per cent, and Harlequin, where revenues rose 13.6 per cent to £10.2 million. With its designs back in fashion, the company experienced bumper demand from the quality end of the UK interior furnishings market from large customers such as department store John Lewis.

Significantly, the Zoffany brand, positioned at the price-sensitive ‘upper end of the premium market’, returned to growth and now has lots of momentum behind it.

Geographical highlights included revenues up almost 14 per cent in the important UK retail market, driven by stellar performances from Sanderson and Harlequin.

Sales progressed positively in mainland Europe, edging up by 2.1 per cent, while over in the US, the market hardest hit by the recession, Walker Greenbank’s retail operations achieved a 13.2 per cent revenue rise. In a further plus, sales from the ‘rest of the world’ region skipped 23 per cent higher on the back of a clamour for product from the Far East and Australasia.

‘We have benefited from customer restocking,’ enthuses Sach, in the hot seat at Walker Greenbank since 2004, ‘and today we are sitting with incredibly strong order books and selling more than we ever have.’

Drawing confidence from a strong cash performance and a reduction in net debt to £3.42 million (£2009: £6.73 million), Walker Greenbank proposed its first interim dividend payment, of 0.15p, for 13 years, covered comfortably by earnings of 2.72p a share. This welcome development followed a return to the dividend lists at the full-year stage after an absence of nine years. ‘Debt is not an issue for us any longer,’ remarks Sach, ‘and we are a cash-generative business.’

Upgraded full-year forecasts from house broker Arden Partners suggest that a pre-tax profit rise from £2.4 million to £4.1 million is on the cards, up from earlier expectations of £3.7 million. By January 2012, with turnover expected to surpass £70 million, up from £67 million in the current year, the company should deliver pre-tax profits of £4.6 million.

Based on estimated earnings for this year and next of 5.2p and 5.9p, shares in Walker Greenbank are still only selling on a forward p/e of 7.9. That is undemanding to say the least, particularly when one notes that dividends for the year are expected to come in at 0.65p (2010: 0.5p), meaning the shares offer a modest, but nonetheless welcome, yield of 1.6 per cent.