Education, Education, Education

Findel's (LSE: FDL) full-year results this morning disappointed the market, but let's look in more detail:

Educational Supplies

This is the most interesting area of Findel's business, and accounts for 43% of sales. Here, revenue increased 40% for the year to the end of March, partly due to acquisitions -- the accounts do not show like-for-like growth figures, but mention that there was organic growth in addition to the acquisitions.

Findel is the country's largest educational supplier, and under a variety of brands it supplies schools with everything from toys to sports kit to laboratory equipment. With the government increasing educational spending by 8% per annum, and increasing emphasis on science subjects, this is a good business to be in.

Home Shopping

Also accounting for 43% of sales, Findel's home shopping division trades under brands such as Ace, Studio, and Summer Living. Not quite the rosy picture that mail-order rival N Brown (LSE: BWNG) painted a few days ago; revenue was down 4.6% in the period. And unlike N Brown, Findel runs its own credit business, rather than selling credit on a commission basis. This increases risks of bad debts, but it has been a nice little earner for the company as they can charge interest rates appropriate to their mainly 'sub-prime' client base. Internet sales were 23% of the division's total.

Services

Findel also provides order fulfillment services to other retailers. Revenues were flat for the year.

The results

While total sales topped £500m for the first time, bottom line figures were hit by restructuring charges of £16m in the Educational Supplies division. Profit before tax fell from £41.5m to £35.1m, although if we adjust for the restructuring charge, amortisation of goodwill, and the sale of land, profits rose from £45.5m to £49.2m.

The restructuring is now mostly completed, and will lead to annualised cost savings of £10m.

The valuation

If we take the adjusted EPS figure of 47.04p, and a share price of 530p, the company is trading on an historical P/E of 11.3. Dividend yield is 2.7%.

The verdict

The market's verdict is clear, with the share price down 7% this morning. Findel has a habit of surprising the market with earnings upgrades, and this morning's figures broke that habit. As a long-term holder of Findel, I am used to considerable fluctuation in the price, but seeing its results fall short of market expectations is a new experience.

The question, of course, is what can we expect for the future. For what it's worth, the Chairman remains confident of "further progress in the current year". I regard the restructuring costs as money well spent, and look forward to seeing the benefits of that in the coming year. The company should also gain when the new postal charges are introduced -- according to some estimates this could add over 3p to the EPS. While home shopping could go either direction, increases in the educational budget should be a significant driver of growth in Educational Supplies.

I'll continue to hold for the moment.

Padraig owns shares in Findel.