Villa World Limited

Decent Performance in FY18 and Dividend guidance for FY19:Villa World Limited (ASX: VLW) posted decent FY18 results with total revenue coming in 14% higher at $ 441.6 Mn compared to the prior year. It was mainly driven by robust sales, strong delivery mindset through operational performance, efficient inventory management, acquisition astuteness and supported by solid technology and systems platforms during the same period. Statutory net profit after tax (NPAT) increased by 15% and amounted to $ 43.6 Mn in FY 18.  On the margin front, EBITDA margin and PAT margin expanded by 24 bps and 8 bps to 16.2% and 14.0%, respectively in FY18 against the previous year. Gross margin came in at 26.6% in FY18 which is above the guidance range of 24-26%. As of 30 June 2018, the company has net debt of $171.1 Mn with a gearing ratio of 29.7%, signifying top end of the Company’s gearing target of 15% to 30%. Based on decent performance, the Board of Directors has declared a fully franked final ordinary dividend of 10.5 cents per share (cps) and it will be payable on September 28, 2018 with the record date of September 4, 2018. This summarized a total dividend payment of 18.5 cents per share for the full year, representing a yield of 8.6%. Further, VLW intends to continue the aforesaid dividend pay-out policy in the range of 50% to 75% of annual NPAT, paid semi-annually to its shareholders. Additionally, for FY 19, VLW expects fully franked total dividends of 18.5 cents per share in which 8 cps are to be distributed in the first half of FY2019.
 

FY18 Financial Highlights (Source: Company Reports)

Recently, the group announced a buy-back program in which the group intends to buy back 6,346,313 ordinary shares (which is equivalent to around 5% of its issued ordinary shares) for capital management purposes, representing a strategic and prudent deployment of capital. The buy-back will start on October 05, 2018 for a period of up to 12 months from the date of this announcement. The buy-back will be funded from existing debt facilities. The Company has appointed Moelis Australia Securities Pty Ltd as broker in relation to the buy-back event. The buy back looks interesting given the group’s operating cash position and earnings profile, though the stock has been under the radar of many short sellers. With general risks covered for the buy-backs in view of any short term price spike while fundamentals still weigh on the side of the group, investors may look for some exposure to the scheme. We still expect that the company will continue to generate decent earnings in years ahead at the back of organic and inorganic growth along with positive medium-term outlook underpinned by strong carried forward sales into FY19 and FY20. Meanwhile, the share price has fallen 7.11 percent in the past three months (as at September 25, 2018) and traded at a low PE level of 6.08x. Based on the foregoing, we maintain our “Hold” recommendation on the stock at the current market price of $2.100.
 

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