Carpetright - a good start for the world of Wilf

Carpetright: Dear old Phil Harris has had a long and successful business career. He now goes by the moniker of Baron Harris of Peckham and an even greater honour is to be a Director of Arsenal Football Club. More problematic is his legacy at Carpetright, which has suffered over recent years from changes in consumer taste, especially the rise of wood and ‘wood’ floor coverings. Phil has tried to let go of the reins but it never seems to have quite happened......until now? He retired as Chairman (finally) in October and the latest Chief Executive, appointed in May 2014, is Wilf Walsh, an unknown in the world of carpets. These interims to 25^th October 2014 are relatively cheery, with sales up 2.6% reflecting macro-economic trends with UK recovery diluted by European weakness (and the effects of Euro weakness). Operating profit moved from £4.1m to £7.4m as European losses were eliminated and UK operational gearing has kicked in despite sharpening the price offer, leading to basic earnings per share of 7.6p against 2.6p. There is again no dividend, the last one having been in 2011, but net cash was £3.2m against net debt of £14.3m a year ago.

Analysts are now being guided towards the top end of expectations, with Wilf Walsh setting out his vision of brand renewal and ‘value heritage’. The UK estate has been trimmed and almost two thirds of shops have been renovated, whilst in Europe better business practices, cost cutting and cash management have led to early wins. These are early days and there have been other false dawns. It may be that the trough for carpets in interior design has passed and people will still want to see carpets in shops, so internet competition is less of a threat. The top end of expectations is about £11m giving about 12.5p of earnings. The shares have jumped over 10% today, to 350p to produce a PE of 28x....true recovery land. The dividend will be re-visited at the finals, but say a 2p notional would be a 0.6% yield. These look very full valuations, but it might be worth keeping a beady eye on how Wilf fares in case a sustainable recovery momentum builds up. (Neil Cumming^, 15^th December 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower