Driver Group Plc (DRV)
The strategic plan implemented in late CY22 is working, with utilisation levels benefitting from the move to a hub-and-spoke operational model and a return to profitability in the smaller Middle East (‘ME’) and APAC regions. H2 24 has started positively, particularly in Asia, as the relatively new office in Seoul is delivering on its early promise. The order pipeline continues to expand, benefitting from the rise in expert headcount. The Board has set aside £1m of ‘excess cash’ to buy back shares and to evaluate M&A in existing and related sectors.
Rising utilisation, ME & APAC return to profit
• The interim results to March 24 were broadly in line with expectations, reflecting strong performances across the UK, Europe, ME, and APAC. The cost rationalisation programme was successfully completed in H1. This, in combination with improving revenues, enabled the smaller ME and APAC regions to return to profitability. Utilisation levels improved further to 79.6% (H1 ’23: 79.2%), aided by the application of the hub-and-spoke model, as the delivery of client services benefits from increased collaboration between global offices. The North American business stuttered due to temporary staffing issues, which have since been resolved.
• The outlook is positive, led by ME, APAC and the UK. The APAC region continues to benefit from the opening of the Seoul office some 15 months ago, with the pipeline growing. The ME region has secured significant projects from the Kingdom of Saudi Arabia, which augurs well over the medium term. The UK and European businesses are benefitting from undertaking client services originating elsewhere. Meanwhile, re-branding the Group to Diales from July 1st conveys an expert-led, added value service offering, moving the Group away from a reputation for lower margin claims work (Driver Trett).
• The expansion of future revenues is predominantly driven by headcount and focuses on recruiting high quality, added-value experts. The Board has stated they have set aside £1m of ‘excess cash’ for potential acquisitions (£0.75m), with the remainder for share buybacks, commencing immediately. The focus of M&A will be to target teams of experts to fill gaps in expertise in areas related to existing disciplines, thereby potentially driving average margins higher. The interim dividend was unchanged y-o-y, modestly covered by earnings. Net cash as at the end of May 24 amounted to £4.2m.
Valuation
We maintain our fair value of 40p/share. With a sector-leading yield, currently standing at 6.0% for FY24, compared to the average of its peer group of 0.5%, Driver’s share price remains undervalued relative to a basket of its peers and is heavily backed by cash and the NAV.
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