Park Group are down around 10% to 12 month lows this morning following today’s trading update. In my earlier post I expressed some concern about the impact of future increased ongoing and exceptional costs. I also pointed out that much of their apparently very healthy cash balance belongs to customers.
Here is a table showing their free cash (not held in trust for customers) and tangible assets for the past few years:
| Date | Free Cash £m | Tangible Assets pre-IFRS15 £m | Tangible Assets post-IFRS15 £m |
| 30/9/2015 | 16.4 | -10.9 | |
| 31/3/2016 | 32.7 | 0.7 | |
| 30/9/2016 | 32.6 | -4.5 | |
| 31/3/2017 | 34.3 | 5.7 | |
| 30/9/2017 | 7.8 | -1.4 | -5.3 |
| 31/3/2018 | 40.3 | 10.7 | 6.8 |
| 30/9/2018 | 34.5 | -0.1 |
Note that I have calculated Tangible Assets by taking Net Assets from various reports and deducting Goodwill, Other Intangible Assets and also the Retirement Benefit Asset. I have excluded the pension surplus because this is only at the accounting (IAS19) level and it would be difficult to recover, for example it is very likely that they would still have to pay a insurance company to take over the scheme. I have included (and not netted off) the earlier pension deficit on another, separate scheme.
The also have (in the current period) a provision for £48m of unredeemed vouchers / gift cards which is included in the net asset calculation. However only £26m of this appears to be held in trust, leaving £22m which it could be argued should be deducted from free cash. Of course the provision assumes redemption patterns continue unchanged.
In the above table an unusual reduction in cash can be seen at 30/9/2017. I have looked for an explanation and the best up could come up with was an increase in working capital due to growth and a one-off inventory build (see below). This did not appear to worry the market when announced and has since reversed as can be seen above.
The end of period cash balances and the cash peak were affected by the decision of a number of customers to take products earlier than usual during the calendar year. This change in customer behaviour has required the Company to bring forward certain stock purchases in order to satisfy earlier deliveries.
H1 2017 RNS
In the context of these figures, £2m of known restructuring costs are not significant, (although further costs could be announced in June). Furthermore, I see there cost savings on pension contributions are due to come on line in FY2019 and in particular in FY2020.
Overall, with a forecast dividend yield approaching 5% and a recent record of growth, I can see the attractions in the share. However the voucher / card market is dynamic and competitive plus they have some of the negative properties of a financial stock and so I remain cautious.
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