Debenhams announcement today that its guidance of full year profits (to August 2019) in line with market expectation no longer being supported by the company leaves the markets view of the company even more in limbo than it was previously in our view.
DEB has announced a new 12month £40m bank facility agreed with certain of its existing Revolving Credit Facility (RCF) lenders and Noteholders and waiver of some existing RCF covenants. This facility with a coupon of LIBOR +5% which can be increased during 2Q calendar 2019 as an incentive to complete a wider re-financing. It has also announced agreement in principle with Li & Fung to develop a strategic sourcing partnership.
Debenhams has reported Group LFL sales down 5.7% (same % change at constant currencies) for the first 18 weeks of the year. Within this, online sales grew by 4.6% implying UK in-store sales declined by nearly 10% LFL on our calculation. Market expectation was for Group LFL to decline by 2-3%. DEB’s UK in-store LFL decline was in our view similar to Next’s and worse than M&S’s Clothing & Home in-store LFL which have calculated at minus 6-7%. So Debenhams’ in-store sales performance was not materially out of line with those competitors. But it has compared badly with its online sales growth compared with M&S +14% and Debenhams +15% and on the basis of initial comments appears to have had to discount to a greater degree than them as well.
The fact that the shares have not rebounded materially on well-trailed news that Debenhams has secured cash savings over two years equivalent to its current debt indicates continuing concern over nearterm volatility and reservations that there will be a medium term here.
This was an odd occasion heavily attended for what has become a small company by capitalisation. The sign-up for this store was four years ago and the lease term 25 years (we believe with some break provisions). The applicability of some of what was seen was limited across the broader estate and the management present were sufficiently new in many cases that they will not have been involved in buying or conceiving much of what was presented. The store presentation appeared to be to a high standard. But there remained inconsistencies in presentation and the clothing product continues to lack differentiation in our view. The company referenced a store review that suggests that the current putative 10 store closure programme may grow and also disclosed a seemingly wide organisational review that will result in material but unquantified central cost savings. We would like to see more of a gamechanger digital/social media strategy to give credibility to the online side of the equation. But Debenhams is having to move faster across a wider range of areas needing improvement than it has probably ever had to do. So it is inevitable that there will be some un-even strategy development and delivery. Overall we expect that cost savings may be enough to reassure investors that Debenhams can live to fight another day over the peak 2018 period.
Path Investments (PATH) -RTO of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Offer TBA. Due late Aug.
Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa
Companies: GDR YU/ NTOG KOD RBN PHD HEAD HSTN DEB SML
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Further UK market weakness has resulted in another profit downgrade and Debenhams (DEB) moving more overtly into a defensive mode. Our 8/18 PBT forecast (pre-exceptionals) has been reduced by 29% to £34m. The company expects to be able to grow profit from its guided 8/18 level of £35-40m. But there is clearly above average uncertainty attaching to its forecasting because of its record in these matters and macro.
Having sat on the fence as Debenhams has struggled through a very difficult Autumn/Winter sector-wide we now believe there are grounds for a more positive view.
1H Results: PBT £42.2m v consensus £44m (2016/17), PBT guidance reduced to bottom and consensus (£50-61m) v previous range £55-65m (2016/17 £95m), modernisation programme accelerated. Regard this mix as positive against apocalyptic expectation expect share price bounce.
Following the pre-announcement of its Christmas trading we have cut our DEB PBT estimates for 2017/18E, 2018/19E and 2019/20E by 33%, 28% and 28% respectively. We have also cut our DPS estimates for these years by 35%, 25% and 22%.to achieve 2x cover in 2018/19E.
Shareholders would have been hoping for better results, especially after NEXT's positive Christmas trading results yesterday.
Debenhams becomes the first Profit Warning of 2018 guiding 8/18 PBT to £55-65m around 20% below consensus at the mid-point. This highlights the operational gearing here with the main financial variance being a 150bps 1H gross margin decline against previous guidance for Full Year gross margin to fall 25bps. This has resulted from tactical promotion to maintain clean stock and weaker than expected start to the Clearance Sale.
In the first volume in our series on the changing face of the British High Street, we look at retailers.
Department store becomes latest retailer to signal slowdown in consumer behaviour in the UK
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The leading network airlines group reported a heavy Q2 net loss and its H2 forecast has been revised downward. Nevertheless, IAG maintains its recovery expectations despite a more pessimistic market outlook.
The group will call for a €2.75bn fund raising to cope with the health crisis.
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William Hill reported strong H1 20 numbers, with revenue and profits ahead of estimates. Revenue was down 32%, a significant improvement vs the 57% drop seen in the weeks immediately following the lockdowns. The adjusted EBIT came in at £11.8m, thanks to better-than-expected savings from cost control. The net debt/EBITDA ratio is down to 2.1x (vs 2.4x at FY19 end). Following the H1 performance, we will be raising our profit estimates to account for the impact of the recent cost controls.
Companies: William Hill Plc
The global online gaming market generated c £40bn of gross gaming revenues (GGR) in 2018 and newly regulating markets (the US) are expected to contribute to 7% CAGR to 2023 (according to H2 Gambling Capital (H2GC)). However, while regulated markets have provided significant opportunities for operators to date, government intervention remains a constant threat and legislation is tightening. Some mature markets (notably the UK) have been raising taxes and implementing regulatory burdens, which increases the cost of business. In our view, success will depend on a combination of scale, diversification, proprietary technology and a strong balance sheet. Many of the 12 operators in this report should benefit from these dynamics and sector valuations remain attractive, at 12.6x P/E, 8.2x EV/EBITDA and 6.0% dividend yield for FY19.
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New management has put in place a strategy which the February interim results revealed was returning the group to growth with very encouraging LFL statistics and attractive returns on refurbished outlets. In March, however, in response to COVID-19 and following UK Government guidelines, all venues had to be closed.
Management initiatives have materially reduced the cash burn while the group is unable to trade, and the group’s lender has been very supportive in significantly increasing the borrowing facility.
Management is now proposing an equity issue, the rationale for which is to strengthen the leverage ratio to create a more appropriate capital structure moving forward, to allow an immediate return to the estate refurbishment programme and to be able to potentially take advantage of strategic opportunities as they arise as the sector emerges from the COVID-19 crisis.
Companies: Revolution Bars Group Plc
Whilst Arena delivered FY20E results in line with our expectations, this has inevitably been overshadowed by the challenges posed by COVID-19 to the industry. Arena acted swiftly to cut costs and preserve cash, such that it currently has a c£23.5m cash balance. This is enough to see the company through into 2021, even if the global event market remains heavily disrupted for the rest of the year.
Companies: Arena Events Group Plc
Following interim results reported last week, with H1 profitability and cash generation ahead of our previously published scenario analysis, we reinstate forecasts for FY20E and beyond today. Inchcape has delivered a resilient performance despite widespread market disruption. Its balance sheet strength creates the potential for further accretive M&A as well as returns to shareholders in the form of buybacks and possible return to the dividend list.
Companies: Inchcape Plc
bet-at-home reported headline figures for H120 ahead of consensus expectations. The results are encouraging given revenue growth in Q220 was better than might have been expected with the regulatory changes (Poland and Switzerland) and the impact of COVID-19 on sports betting. Management has reiterated its guidance for FY20, and the strong financial position makes the prospective dividend yield of 7.0% look attractive.
Companies: bet-at-home.com AG
Government bans on new fossil fueled vehicles in many major economies are likely to drive significant growth in electric vehicles (“EVs”) over the next twenty years. This will create growth in electricity demand from EV charging. The volume of energy to be supplied creates opportunities for both supply companies and generators and the provision of charge points is already creating a new industry. However, the timing of this demand puts pressure on local distribution infrastructure. While smart charging and vehicle to grid technology offer solutions, we believe these will only be partial given likely charging behaviour and as a result there will be demand for additional grid capacity and for other solutions. These other solutions include charger located storage and distributed generation.
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The trade-off in the risk/reward for gold and gold mining equities is improving, as central banks push the current iteration of the post-World War II Bretton Woods financial order towards its limits.
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Disney+ hits 22m mobile users, SoftBank backed firm downsizes IPO, German mobile carrier selects Huawei
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JDW’s Q2 performance was slightly ahead of our estimates. The publican benefited as Britons continued to go out to eat and drink over Christmas and the New Year. Management’s disclosure of a further increase in FY19/20 net debt is a concern (although it is attributable to higher than expected capital expenditure). No significant changes to our financial estimates.
Companies: JD Wetherspoon Plc
Despite the challenging market environment, Arena has delivered interim results that were broadly in line with our expectations (Adj EBITDA of £16.6m vs £17.0m forecasted). Cost saving initiatives are being implemented, which should support margins going forwards, whilst the company is expected to benefit from some significant contracts due for delivery in FY21E.
IAG’s expectation of a faster-than-peers recovery in the activity might be affected by the UK government’s mandatary quarantine measures for all air passengers arriving in the country. Despite the industry-leading profitability and comfortable amount of cash in hand, the market environment remains challenging for the group.
Cenkos Securities plc has terminated coverage of Angling Direct Plc. Our previous recommendation (BUY) and forecasts can no longer be relied upon.
For further information please contact Cenkos.
Companies: Angling Direct Plc
AFC Energy is a global leader in the fuel cell sector. It has a proven fuel cell technology which it is commercialising through its H-Power™ product, an off-grid electric vehicle charging system which is run on hydrogen and produces no emissions. The company's core fuel cell technology is a liquid alkaline fuel cell called HydroX-Cell(L)™. The company is also developing a solid alkaline fuel cell called HydroX-Cell(S)™ , the critical component of which is a is a solid electrolyte which upon validation will be marketed under the AlkaMem™ trademark. We expect the AlkaMem™ product to have multiple electro-chemical applications outside of fuel cells. The purpose of this note is to compare AFC Energy's products, markets and business strategy against its listed peers Ceres Power and ITM Power. The note also assesses the state and outlook of the hydrogen market in addition to the proton exchange membrane market, which is relevant for AFC Energy's AlkaMem™ product. As a reminder, we believe AFC Energy has a fair value of 27p/sh.
Companies: AFC AFC AFC