Communisis: On Target With Strong Pipeline

Communisis (CMS.L) is on track to meet our FY12 forecasts and has a strong and growing pipeline of new contractual work, which augurs well for 2013 and beyond. The shares have opened 2013 strongly and continue to narrow the discount to the support services sector. This is likely to continue as strategically driven growth is delivered.


Trading in line
In its trading update of 16 January, Communisis confirmed that FY12 trading would meet company expectations. International expansion was strong and overseas sales accounted for 7% of group sales (2011: 4%), reflecting progress made with a major client in the FMCG market in Europe.

Strong pipeline going into 2013
Communisis has already announced major new contracts with BT (November 2012) and Nationwide Building Society (January 2013), which will both begin to contribute in 2013. News of further new business wins is possible as the year progresses.

Net debt better than forecast
Net debt for FY12 was approximately £21m (FY11: £24.7m), which is below our estimate of £24.7m. Compared to our estimates, lower interest paid, tax and capex (slightly offset by higher acquisition spending) saved £1.3m with the balance coming from working capital savings. Timing may be responsible for some of this movement.

Estimates unchanged ahead of 7 March results
We maintain our FY12 estimates apart from the better year end debt figure, which is heavily second-half weighted, leaving net interest charges substantially unchanged. In FY13, which starts with a lower net debt figure, we assume that the benefits of timing differences are partly reversed. We allow for small interest savings and adjusted PBT estimates are raised from £11.2m to £11.3m. However, the estimated tax charge will be higher than we had forecast (23.5% vs 22%) and shares in issue (and fully diluted) will be slightly higher, leaving the estimated (normalised) EPS at 6.3p.

Valuation: Shares up 21% in 2013 so far
The shares have opened the New Year strongly (up 21% compared to a 3% rise in the FTSE All-Share) and the discount to the sector continues to narrow: Now 47% (for FY12) compared to 61% when we last wrote on Communisis (17 December). As confidence grows in the company’s strategically driven growth, the discount could continue to narrow.

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