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How defensive is professional training firm BPP? Management believes that its exposure to graduate training coupled with rising demand for postgraduate qualifications during periods of lower job creation should help insulate the business from any economic weakness. The recent share price performance, however, suggests that investors may think otherwise.
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Underlying growth in 2007 was impressive, although investment in the business did knock full-year numbers. The group’s publishing arm enjoyed a particularly strong year thanks to significant professional exam syllabus changes, which temporarily stifled the usual trade in second hand materials.
Recently appointed chief executive Roger Siddle is undertaking a review into future growth opportunities at a cost of £1m. The biggest opportunity available stems from the award of degree-awarding powers to BPP last autumn. However, the timing of the award means the new powers will, unfortunately, have little impact this year. The group is also pushing through efficiency improvements which include the introduction of new computer systems that should boost margins by 2 per cent from mid-2009 onwards.
Broker ABN Amro forecasts 2008 EPS of 33.2p (2007: 30.1p).
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| BPP (BPP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 493p | MARKET VALUE: | £244m | |
| TOUCH: | 485-500p | 12-MONTH HIGH: | 738p | LOW: 482p |
| DIVIDEND YIELD: | 4.2% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 32p* | NET DEBT: | 55% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2003 | 112 | 8.9 | 6.3 | 13.8 |
| 2004 | 102 | 13.7 | 15.7 | 15.0 |
| 2005 | 113 | 15.9 | 17.8 | 15.6 |
| 2006 | 130 | 18.0 | 23.5 | 17.7 |
| 2007 | 150 | 18.5 | 25.8 | 20.9 |
| % change | +16 | +3 | +10 | +18 |
Ex-div: 23 Apr Payment: 23 May *Includes intangible assets of £19m, or 38p per share |
||||
It will be interesting to see what comes out of the review, but given the current economic uncertainty, trading on 15 times forecast earnings the shares are fairly priced.
Last IC view: Fairly priced, 568p, 10 Aug 2007.
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