Park Group and a tale of diminishing returns

Park should know, the redemption production business remains a punishingly thin-margin game. When it comes to individual consumers – which still make up the majority of billings – it’s also a tale of diminishing returns. Despite a record number of accounts opened over Christmas, and a sharp rise in mobile traffic in the full period, divisional profit dipped 6 per cent to £6.8m, chopping the margin to 2.9 per cent.

However, momentum appears to be with larger corporate customers, who billed 8.1 per cent more year on year. That was partly sparked by a successful campaign to increase the number of clients being billed at least £100,000 a year. Revenues from these accounts jumped fivefold in the period, and if the price has been some margin sacrifice, it hasn’t been reflected in corporate profitability, which climbed from 3.7 to 4 per cent.

The group has put “greater emphasis on account management”, which underpinned growth in sales from established customers, even though some low-margin single-store products were removed in favour of higher-margin multi-retailer redemption products.

Some might say it’s disingenuous that Park is moving up the value chain – but it's a valid aim. It is also endeavouring to improve customer experience, an overworked term, admittedly, but given the volume of new customer accounts, the emphasis appears to be paying off. Management is also seeing strengthening growth in the B2B segment, and a marked shift towards digital, an increase in experiences, in addition to demand for more personalisation in products.

Both inventories and trade receivables have increased significantly since FY2018, but the group remains cash-positive. Cash flows from operating activities were £6.9m, 35 per cent down on the prior year, due to an increase in monies held in trust, offset by a cash inflow in respect of working capital.

Consensus forecasts are now for earnings per share of 5.1p a share for the year to March 2020, rising to 5.8p in FY2021.