Edison Investment Research Limited: Edison issues outlook on Findel (FDL)

London, UK, 8 June 2018

Edison issues outlook on Findel (FDL)

Findel (FDL) is seeing outstanding success with its online-led value retail strategy. FY18's 21% PBT growth includes a strong Black Friday and Christmas campaign. However, underlying independent market share growth puts FDL on the right side of a difficult sector. Also, considering that customer redress has been bottomed out, Education has been stabilised and that core net bank debt (excluding receivables-related debt) is close to net positive, most of the negatives in the investment case have been removed. FDL appears to have turned the corner and our revised valuation suggests significant valuation headroom.

In our view, despite the recent share price rise, a FY19e P/E of 9.9x, does not yet fully recognise FDL's independent growth characteristics or the effective removal of the negatives in its investment case. Our revised valuation approach uses two metrics: a DCF projection to value on the longer-term income stream; and relative valuations to price growth among peer retailers. The first values the shares at 401p, the second at 455p. We therefore define a blended valuation of 428p, implying an unstretched FY19e P/E of 15.5x and EV/EBITDA of 8.5x.

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