Wilmington – watch the price closely ready to seize a bargain

Mark Watson-Mitchell is watching the price of education specialist Wilmington, with a view to grabbing a bargain. 

Within the next few weeks this information, education and networking group could be announcing its June 2020 year-end trading update.

The last year could well have seen profits almost halve while revenues could have eased by a quarter.

However, Wilmington (LON:WIL) could see a major recovery in the year starting on 1 July.

Estimates suggest a bounce back in sales and more than a doubling of 2019/20’s pre-tax profits.

The UK based group, which operates in eight countries, has some 23 offices, serving clients in over 120 countries, has around 1,000 employees.

It has three main business segments – risk and compliance, healthcare, and professional.

A breakdown of the group’s £122.53m sales in the 2019 year saw healthcare generate £46.31m (37.8%), risk and compliance £42.45m (34.6%), and professional £33.76m (27.6%).

Geographically 2019 reported the UK with £69.84m in sales per region (57%), non-UK Europe £22.06m (18%), North America £20.83m (17%), and the rest of the world £9.8m (8%).

At the half-way stage, the revenue by type was some 50% from information, training was 42% and networking 8%.

The £125m capitalised group has 87.6m shares in issue.

Large holders in the equity include Aberforth Partners (15.1%), Premier Fund Managers (8.28%), Gresham House Asset Management (7.24%), Chelverton Asset Management (4.90%), Threadneedle Asset Management (4.72%), Artemis Investment Management (4.64%), NFU Mutual Investment Services (4.21%), Schroder Investment Management (4.11%), and Herald Investment Trust (2.84%).

Former Wilmington boss Brian Gilbert still holds 2.7m shares (3.12%).

Estimates for the year just ending suggest sales falling to £106m and pre-tax profits collapsing from £14.71m to just £8.43m, while earnings decreased from 17.44p to just 5.83p per share.

For the coming year £120m of sales, profits of £17.25m and earnings of 13p per share are estimated.

With its shares currently trading at around 143p, that puts them out on a massive 24 times historic earnings, but at just 11 times estimates for the year to end-June 2021.

The group has always achieved a good rating for its shares, around 15 times p/e.

They were trading at just under 280p late last year and only fell away to just 102p at the end of March this year. The question is just how the shares will react to the forthcoming trading update.

When evidence emerges that the year to end-June 2021 is recovering as brokers estimate the shares could well bounce up to around 13 times expected earnings, which could see them trade around the 170p level.

A small holding ahead of the update may be sensible, with a view to doubling that upon the market reaction.

The answer might be best to hold back entirely and anticipate a reactionary fall in the share price before jumping in to take a longer-term advantage.

My end-2020 target price is 175p.