Debenhams: The mysteries of the High Street
include why John Lewis feels modern and relevant, but the likes of House of
Fraser and Debenhams struggle to excite. (Let alone considering the fates of
Beales, Bentalls and BHS.) Part of the solution is overseas expansion and part
is to increase shop concessions and in house brands, in order to reduce further
the Grace Bros. ambience. The group currently has 246 stores in 27 countries,
with 160 or so being in the UK. Debenhams also suffers from an aura that, over
the years, private equity bought it cheaply, sold it dearly and that the resentful
stock market is the chump. A poorly rationalised ‘snowy’ double profit warning
in 2013 has not helped the image either. So to today and here are the interims
to 28th February 2015, with LFL sales up 1.3%, pre-tax profits up an
expectation-beating 4.3%, eps up 5.4% and a maintained 1p dividend. The balance
sheet has felt stretched at times, so a snap-shot debt reduction of £64.2m to
£297.3m was welcome, even if boosted with ‘timing benefits’, which will partly
reverse in H2. As a result net debt to a rolling 12 month EBITDA is 1.3x
against 1.6x a year ago. Lots of coalface work seems to have helped with both
UK and International segments moving ahead. There has been better stock
control, fewer days on promotion, improved synching to payday cycles and
improved multi channels capabilities. Part of this involved moving the New
Season Spectacular into the first half, so there will be some joy to hand back
in the second half.
The group guidance is that they are on track to meet full year
expectations, with consensus eps at 7.4p. Certainly, in the UK, zero inflation
and some wage inflation will be cheering the consumer as he sees disposable
income pointing in the right direction. The shares have reacted well today,
being up some 5% at 84p, giving a PE of 11.4x. The interim dividend has been
maintained and an expected maintained final gives a total of 3.4p for a yield
of 4.0%. So the rating is very undemanding, but this is a stock with history.
The yield is nice, but not spectacular and analysts’ forecasting horizon
doesn’t include a dividend increase. So it may be a cheap stock with scope to
close the discount gap, but beyond that could just be an old-fashioned value
trap. (Neil Cumming, 16th
April 2015)
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
No comments:
Post a Comment