Carpetright - shedding the past rapidly

Carpetright (CPR.L): Hat's off to Wilf Walsh after a successful first set of annual results in the Carpetright hot seat. Back in December I noted that he was making good progress and that the stock merited some renewed attention. However, with the share price having moved from 350p then to 620p now, clearly I was way too cautious. In these results to 2^nd May revenue was up 3.3%, with underlying pre-tax profits jumping from £4.6m to £13.0m. A similar jump was seen in eps to 13.7p (against December’s expectation of 12.5p) from 4.7p. There is no return to the dividend list yet, which may just disappoint any super-bulls of the stock. On the back of UK LFL sales up 7.3%, UK operating profit jumped from £10.7m to £14.3m, with the Rest of Europe moving into a profit of £0.3m, against a loss last year of £3.8m. Cash generation resulted in a move from net debt of £11.1m to cash of £0.5m. There was an £7.6m exceptional charge largely relating to the re-profiling of the store estate, with 15 new stores opening and 32 stores closing. Trading do far this year has continued in the same positive vein with UK LFL sales ahead 4.9%, whilst Europe has accelerated from last year’s +0.3% to +7.4%.

Carpetright had become a byword for cheap and cheerful, but there is clearly progress towards broadening its appeal through moving service and quality up the agenda. In the next five years 27% of the UK estate has a lease renewal, offering further major opportunities to re-shape the store portfolio and look to reduce rent costs. A similar exercise is underway with the Rest of Europe stores, where the average lease length is a lot shorter than the UK’s 7.1 years. Further encouragement comes from the positive outlook for the UK consumer and an improvement in consumer confidence in Belgium and the Netherlands. Upgrades should come through after these results and being bull-ish for FY2016, eps of 22p might be possible. Yet at 620p that is a PE of 28x, with no specific timetable for a dividend return. It will be no surprise that I am not prepared to pay up for the stock, but for recovery style investors the direction of travel is most encouraging. (Neil Cumming^, 30^th June 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