For 1 Jan to 30 Apr, organic revenue growth was 7.0% (Nov/Dec 12 was 7.1%), with guidance for FY13 or 7-9% organic growth. Mixed report, the usual areas of growth, but Assurance was weak, Toys/Hardlines flat and Commodities bad and worsening. Commodities declined “more sharply than previously expected”, only c.5% sales but this has caused group margins to fall YoY, a “sharp profit decline” seen in the first 4 months in Commodities and this is now expected to continue into H2, meaning group operating margins will be flat YoY for FY13 (consensus expect rising 20bps to 16.5%). On 20x Y2 PE heading into numbers, this is still higher than previous peaks in the last 10y and at 4.2% FCF yield 2014 it’s still a long way from being eligible again for our HQG Basket on valuation (5% Y2 FCF yield cut off). With growth at low end of range for first 4 months and margin guidance now for flat, some downgrades now need to be put through and the stock is at all time highs.
Avoid.
