Wilmington sharpens its product focus

During a reassuringly predictable half-year performance from Wilmington (WIL), perhaps the most noticeable event was the November purchase of Cardiff-based Astutis Limited for an initial consideration of £16.8mn, along with potential contingent payments of up to £4.7mn.

Astutis provides training for a range of regulated health, safety and environmental qualifications, so it certainly falls within Wilmington’s risk and compliance market offering. A fair value assessment of the deal implies goodwill of £12.4m, suggesting, not altogether unsurprisingly, that the full value of the acquired assets will be realised over the long run.

The initial impact on the balance sheet will be mitigated to an extent by the post period-end disposal of the group’s MiExact business as it has failed to meet six characteristics which management recognises as “key drivers of organic revenue growth and profitability improvement”. Wilmington has initiated a sale process for its Healthcare business for the same reason. Therefore, it has been classified as a discontinued operation.

Aside from the news on M&A, half-year trading was solid, as evidenced by an 11 per cent increase in recurring revenue from continuing businesses, mirroring high retention rates (73 per cent of revenue). Meanwhile, adjusted earnings per share increased by 12 per cent to 6.86p.

The net cash impact of the deal activity should become clearer by the June year-end. As usual, the first-half working capital outflow will be offset by increased revenue collections through the remainder of the year, although an operating cash conversion rate of 92 per cent suggests that matters are in hand.

The rationale behind the Astutis deal is not difficult to appreciate. In an industry increasingly driven by “specialism”, Wilmington appears intent on boosting performance by tailoring and optimising competencies. A forward rating of 15 times consensus earnings doesn’t look overstretched compared to the peer rating, so it would not be surprising if it came to the attention of bigger fish in the pond. Hold.

Last IC view: Hold, 311p, 25 Sep 2023