Parity Group Plc (PTY)
ISR viewParity has had a rough time through the downturn and its revenues have been under pressure but prudent cost control has meant that the group has remained profitable. If Parity Solutions is to be less of a slave to the economic cycle, it needs greater scale and, in our view, clearer positioning.
It’s all about cash flow
Parity Group Plc | Download | Published on 26/03/20102009 was a tough year for Parity, especially the Solutions division which saw revenues fall 16% and margins drop sharply. Nevertheless, results announced this week were broadly in line with our expectations and we have only made minor changes to our 2010 estimates. Cash conversion was disappointing but we are assured that it was down to a short term issue and Parity remains well within its facilities.
As we emerge from recession, we expect the Solutions business to recover more strongly than Resources. The current valuation is in line with peers but, with over 70% of the enterprise value as debt, cash flow will be the key determinant of share price performance over the next 1-2 years.