Murgitroyd announced results on 12th September, with a welcome return to PBT growth in H2 (+6.9% vs prior year, EPS -8.4% due to tax charge which contained some H2 one offs). The long-term trends of steady market growth are intact. Margins are starting to point upwards. There is continuing investment in business development, and in scale (including a 2016 acquisition which saw H1 integration costs). We anticipate an H2 profit weighting once more, in the current year.
- Key drivers: Group revenues and dividends have grown each year since incorporation in 2001. Murgitroyd has a global footprint, with a cost-engineered flexible offering. US and European patent markets are at all-time highs, albeit macro-economic uncertainties must be taken into account. Historically, market volatility has been muted. Global markets continue to grow.
- FY18E: Our estimates take into account that the US$ strength which benefitted FY17 is not following through. The USA, contributing 50% revenue, remains a key focus for investment. We slightly raised our dividend estimates (from 17.8p) as of the results announcement. We understand margin trends are stabilising. 1H18 will not bear integration and other costs which impacted 1H17.
- Valuation: 2018 will see an H2 profit skew. Earnings grew through the post-2008 financial crisis, so, the rating should reflect resilience in uncertain macro-economic times – albeit some uncertainty affects Murgitroyd’s own clients. Note that the 26% FY16 tax charge rose to 32% in FY17 and same estimated for FY18E.
- Risks: The risks to growth rates (balance sheet and cash flow being secure and stable), centre around the details of patent filing protocols. These can influence broad trends in pipeline of work; around the fee negotiations with clients and with the risks and opportunities of technology. Murgitroyd has benefited from on-line but this also poses a threat at the level where Artificial Intelligence could be deployed. There is global exposure in revenue and costs: modestly US$ income over £ cost.
- Investment summary: Ongoing good dividend growth and free cash flow are attractive, in an environment of a steadily growing global market. H1 cash flow was impacted by the investments made and strong inflow in H2 came as anticipated. The company has strong resources to build growth.
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