PMP has now largely completed the major transformation programme that it started in 2012. The company has achieved a significant cost base reduction and has greatly reduced its financial risk
Transformation programme
PMP has continued to deliver on its transformation targets and financial forecasts with EBIT, EBITDA, and net debt all exceeding the guidance over the last three years. This gives a high level of confidence in management.
Credit profile
PMP’s credit profile continues to improve as the group executes its agenda of being net debt free. The group’s credit profile is characterised by significant free cashflow and minimal net debt. Free cashflow has averaged $31.2m over the last four years.
The significant free cashflow has been kept in the business as the bond restricts payments to equity holders (e.g. dividends/share buyback) greater than 100% of NPAT excluding significant items. FY16 NPAT is guided to be around $12m, while as previously stated free cashflow is typically $30m plus per annum. This means cash will continually build on the balance sheet if these levels are maintained. FY16 cash on the balance sheet is forecasts to be around $50m. There is minimal debt senior to the $40m bond. At 1H16, PMP has a loan of $14.6m secured against an offset rotary press and a $10m overdraft which remains undrawn.
At 1H16, leverage (net debt to EBITDA pre significant items) reduced to the very low level of 0.2x and EBITDA interest coverage was a strong 8.2x.
Debt levels and free cashflow
Source: Company reports, FIIG Securities
* Forecasts based upon Bloomberg consensus figures
PMP’s balance sheet is strong and has been positioned defensively in response to operating conditions and to give the firm the flexibility in terms of participating in possible industry consolidation.
PMP’s balance sheet is characterised by a solid level of equity and tangible assets, with material value in debtors, inventory and equipment. Equity was $266m at 1H16 while tangible assets were $370m, largely comprising of property plant and equipment ($167.7), accounts receivables ($77.8m), inventory ($68m) and cash of $39.5m.
Outlook
PMP state that trading conditions remain challenging with mixed signals in the Australian retail sector, however industry demand for catalogues remains stable. PMP NZ is experiencing tougher than expected trading conditions with pricing pressure in heatset printing. Volume will likely be lower going forward due to the loss of Dick Smith and the Masters decline. However at PMP’s AGM, its full year guidance was affirmed:
- FY16 EBITDA (pre significant items) to be in the range $53-57m
- FY16 EBIT (pre significant items) to be in the range of $24-28m
- NPAT (pre significant items) $11-13m
- Full year net debt guidance range is $3-7m
- Full year free cash flow $33-37m
Summary half year financials
| $m | 1HFY16 | 1HFY15 | Var $ | % |
| Sales revenue | 390.5 | 427.3 | (36.8) | (8.6) |
| EBITDA (before significant items) | 29.0 | 31.4 | (2.4) | (7.7) |
| EBIT (before significant items) | 14.8 | 15.7 | (0.9) | (5.9) |
| Net profit (before significant items) | 7.8 | 7.5 | 0.4 | 4.9 |
| Net profit (after significant items) | 1.8 | 4.3 | (2.5) | (58.8) |
| Free cash flow | 17.5 | 14.1 | 3.5 | 24.7 |
| Net debt | (10.4) | (40.0) | 29.7 | 74.1 |
| Earnings per share (cents) | 2.4 | 2.3 | 0.1 | - |
Source: Company reports
With minimal debt, significant cash and cashflow generation PMP exhibits a lower risk credit profile. PMP’s September 2019 fixed rate bond is indicatively offered below par at $99.90 with a yield to maturity of 6.46%.
PMP’s 1H16 trading update
is available to read, along with the bond factsheet and the full research report.