Buy Walker Greenbank for post-flood growth

Walker Greenbank designs, licenses and markets high-end wallpaper, fabrics and paints. It also manufactures from two sites. The business is separated into brand (70 per cent of sales and 90 per cent of profit) and manufacturing divisions, and among the iconic British names it owns are the likes of Sanderson and Morris & Co.

Trading improvements since the first half of last year suggest the company is well on its way to putting the flood behind it. While the disruption caused organic branded sales to fall 4.7 per cent in the first half of last year, as the year went on conditions improved, with growth of 2.4 per cent in the final 17 weeks. In the first 20 weeks of the current financial year, branded sales were up 4.5 per cent. While the international nature of the business means currency has flattered the result, on a constant-currency basis growth was still 1.1 per cent in the recent 20 weeks. Insurance payments largely mitigated the hit from the flood to manufacturing sales, and stock levels have now been rebuilt.

In addition to organic growth, earnings are expected to be substantially boosted by last October's acquisition of Clarke & Clarke for £42.5m, which includes a contingent payment of £17.5m based on four-year performance. The business specialises in more affordable modern designs that should complement the existing business well. Broker Investec reacted to the acquisition at the time by hiking earnings expectations for the current year by over a fifth, and management says Clarke & Clarke is meeting expectations. In fact, it could do better still if there is a continuation of the "noticeable" increase in manufacturing export orders that Greenbank saw at both its factories in the first 20 weeks of the year.

Licensing sales provide another reason for optimism. These are being focused on to improve branded sales growth and two recent deals for blinds and bedlinen in the US and China should boost second-half earnings. The company should also benefit in the second half from the launch of a new spring range and performance should be pepped up by last year's investment in state-of-the-art printing equipment as part of the refit of the flood-hit factory.