LIBERUM: Consumer Discretionary - Dealspotting and other news
March was a challenging month across the retail space, highlighted by the increase in the number of profits warnings, restructurings and companies falling into administration. Majestic Wine, Goals Soccer Centres, LK Bennet and speculation surrounding Arcadia Group are some of those.
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02 Apr 19
Guidance abandoned | New indicative forecasts
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.
05 Mar 19
Re-financing first stage | Rating suspended
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.
12 Feb 19
LIBERUM: General Retailers - Buying and selling the re-rating
The chasm between winners and losers is widening. While this was expected, the scale of the ongoing structural changes is mired by the multiple excuses that have become far too common.
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04 Feb 19
LIBERUM: VIDEO: General Retailers - Rating recovery amidst downgrades
In these five short videos Consumer Analysts, Adam Tomlinson and Tom Musson focus on Christmas updates and look ahead into 2019 for the best growth, income, recovery and value stocks, as well as those they are cautious on.
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23 Jan 19
LIBERUM: General Retailers - Rating recovery amidst downgrades
Branded fashion retailers, Joules and Ted Baker have been the two stand-out performers in the sector resulting in a strong bounce in their shares. Next provides a glimpse that a diverse offering resonates well but keeping a close eye on proposition is crucial. The traditional retailers are much more mixed with CARD, Halfords, Debenhams and M&S all disappointing on Super Thursday. Many, not all, comment on the backdrop, but fail to reflect on themselves which is part of the problem, in our view. Online retail is not a silver bullet, but valuations here are now much more attractive.
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11 Jan 19
Weak performance has led to greater cost savings
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.
10 Jan 19
LIBERUM: Consumer Discretionary - Dealspotting, and other news; November 2018
November has seen a mixed bag of results from the Consumer sector, but on balance they weigh negatively. Over 80% of our coverage universe saw their shares fall in the month. But against a backdrop of uncertainty, high levels of M&A and capital raising persist, showing that deals are still getting done in this tough market. ASOS stands out this month as launching the most interesting innovation, with its Fit Assistant and the launch of Afterpay (we assume just in Australia, for now). Ahead of Christmas trading, Debenhams and Next have increased their online share of voice.
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03 Dec 18
LIBERUM: Debenhams - Positive plans, but much to do
Debenhams’ turnaround strategy is based upon repairing the balance sheet, sweating its assets harder and then investing in growth areas in order to lay a path to sustainable, profitable growth. These are appropriate steps. However, there is much to be delivered. Store closure guidance will be tough to achieve, in our view, and the reduction in capex, which will lead to low spend relative to peers, could mean improving Debenhams’ competitive position in the marketplace becomes harder. We update our forecasts to reflect the self-help measures and guidance announced at the recent prelims, with slight EPS cuts in FY19E-20E, but an increase in FY21E as cost savings benefit. The targeted £350m incremental cashflow generation by FY20E could provide valuation support if achieved. We maintain our HOLD rating and target price of 10p.
31 Oct 18
Prelims and Strategy Update
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.
30 Oct 18
LIBERUM: Debenhams - Results in line; bold strategy announced but with much more to do
FY18 underlying PBT of £33m (pre-guided) is in line representing a 65% fall year-on-year. The new news is that no final dividend will be paid (consensus was 0.6p) and additional cost saving and capex reduction measures have been announced that management expects to release cumulative cash flow of c.£350m by FY20E. Returns on new format stores over peak will inform roll-out plans, there will be an update on the store programme in April and the strategic asset review is ongoing. The significant action we have been asking for has clearly been announced and we are encouraged by the more aggressive restructuring strategy to reposition the business. The release of £350m by FY20E, if delivered, could underpin the current valuation. There is a lot of detail to go through, but we are encouraged by today’s announcement and the potential for future cash flow improvement suggests a HOLD is now warranted after a share price fall of 75% YTD.
25 Oct 18
Store Visit Watford 24th Sept 2018
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.
25 Sep 18
LIBERUM: Debenhams - A good store tour doesn’t change our view that this is a value trap
Yesterday at Debenhams’ new Watford store, we got a flavour of the progress being made under the ‘Destination, Digital, Different’ pillars of its new strategy. The changes are positive, but we question the affordability of a transformation across the entire store estate. Turning c.12m sq ft into ‘destination’ space is tough and it is our view that much more drastic action is needed to materially right-size the store estate for sustainable long-term profit growth. Structural challenges continue to persist and we see the company as a value trap. We reduce our forecasts in line with company’s guidance earlier in the month, noting that the change is already reflected in the market price, with a flow through to outer years and reiterate our SELL rating with 10p target price.
25 Sep 18
Small Cap Breakfast
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
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22 Aug 18
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.
20 Jun 18
LIBERUM: Debenhams - 25% profit warning, no change to view
Continued weak trading has led Debenhams to issue a 25% profit warning. This comes on top of the already 50% cut to our estimates over the last 12 months and highlights the ongoing structural pressures that we do not expect to abate. Management is seeking further cost savings and will now materially reduce capex next year. While this may give balance sheet protection it is unlikely to help close the gap vs. the competition. No change to our view and we lower our target price to 10p (from 15p). We continue to see Debenhams as a value trap. SELL.
19 Jun 18
LIBERUM: Debenhams - Negative momentum, visibility remains low
We cut our FY18E and FY19E PBT estimates by c.5% following the interims. For FY18E, we now stand at £48.0m, which is below management's ‘low end of £50m-£61m guidance’ and below where we think the new consensus will form. There is pressure on H2 to hit our numbers. We acknowledge the progress under the ‘Destination, Digital, Different’ pillars of the Debenhams Redesigned strategy, but we have yet to see this feed into the group's financial performance and visibility still remains low. As a mid-market, more traditional player Debenhams is exposed to ongoing structural challenges and increasing levels of competition. We reiterate our SELL recommendation.
20 Apr 18
Kind of re-assuring
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.
19 Apr 18
LIBERUM: Debenhams - Forecasts down 50% in three months, reiterate SELL
H1 18 PBT is at the lower end of expectations, following the profit warning in January. Net debt increased, given the lower profits. Consensus could fall 10% and we are reassessing our numbers but there is clear downside risk. This raises questions around debt covenants. Matt Smith, CFO, is departing and the search for a successor is underway. Revenue visibility is low due to the high operational gearing. Debenhams is investing just to stand still and is acutely exposed to the ongoing structural challenges in the market. We reiterate our SELL recommendation and reduce our TP to 20p (from 25p).
19 Apr 18
Whoops - Profit Warning
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.
05 Jan 18
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.
04 Jan 18
LIBERUM: Debenhams - Analyst call reinforces our SELL view
The conference call to analysts/investors this morning provided little comfort. Our concerns around the security of the dividend are real and clarity here will come at H1 reporting (April). At this stage, debt levels are not an immediate concern, but this is dependent on (i) trading performance and (ii) the level of capex required to support the transformation strategy. In an environment where digital, brands and those with a clear market position are generating superior rates of growth, the structural challenges facing more traditional retailers, particularly those such as Debenhams, are likely only to intensify.
04 Jan 18
LIBERUM: Debenhams - 35% profit downgrade and TP to 25p (from 40p)
Christmas trading is below expectations, which coupled with a significant decline in gross margin, leads to a 35% downgrade in our FY18E PBT. Our new forecasts of £52.1m is below guidance of £55m-65m PBT for FY18E and whilst the DPS remains covered by earnings it is uncovered by free cash flow. Ongoing structural challenges, a soft consumer environment, rising costs and increasing capex demands make for a difficult outlook, in our view. We reiterate our SELL and downgrade our TP to 25p.
04 Jan 18
N+1 Singer - Retail - Matthew - Brexit driven forecasts and valuation update
Prior to the EU vote, fears of Brexit undermined consumer confidence and spending patterns, and sterling weakened against the US$ and the €. Wider fears for employment, consumer spending and economic slow-down had hit Retail stocks significantly (-10% rel. YTD). Friday’s surprise Brexit vote has impacted Sterling again and will further knock confidence and spending too. The sector came under material further pressure as a result, falling 10% on the day vs the Allshare’s 3%. As noted on Friday, there are 4 stocks in our universe where forecasts are favourably exposed to FX upside risk (BCA, Boohoo, Swallowfield, Walker Greenbank), 5 stocks which we have downgraded (Debenhams, Findel, Halfords, N Brown, Howden Joinery) with the remainder left unchanged including Motor Retailers.
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27 Jun 16
Good strategic progress, interims slightly better than expected
Most interim numbers will be slightly better than consensus, helped by lower interest (where guidance is upgraded). Reducing net debt/gearing is also accompanied by a 2.5% DPS increase. Key strategic actions are gaining traction and, although FX translation headwinds have hampered reported international profits, this could begin to reverse now. Key concerns are unseasonal spring conditions in the clothing/footwear sector (albeit DEB exposure <50%) and uncertainty over recent/planned management changes, albeit the CEO search process is at an advanced stage and high quality names have been linked with the role. Given a low valuation the shares can still advance though.
14 Apr 16
Debenhams (DEB LN) Good strategic progress, interims slightly better than expected | Entertainment One Ltd (ETO LN) Takeover speculation | Lavendon Group (LVD LN) Solid start to FY’16, but we remain cautious on the Middle East | Renold (RNO LN) Year end guidance above market expectations | Scapa Group (SCPA LN) Trading ahead of expectations; Healthcare strong
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14 Apr 16
Shares should bounce on successful completion of 3-peak challenge
The market had been pricing a lot of negativity into today’s update on the back of difficult trading conditions in the run up to Xmas and evidence of weak trading amongst its large (and small) peers. Historically DEB didn’t have the flexibility in the cost line vs the likes of MKS and NXT. This meant increased dependency on LFL sales and margin performance - and today’s update is both positive in absolute terms and substantially better than the bears would have feared, putting the group on track to deliver FY PBT expectations, albeit these edged down in recent weeks. This performance confirms traction is increasing in the strategy. From a cal16 P/E of 8.2x (4.5x EV/EBITDA) we would expect a reasonable bounce today, making the shares at least a trading buy.
12 Jan 16
Boohoo.com (BOO LN) On track to deliver FY forecasts as top line growth strengthens | Cineworld Group (CINE LN) In line YE update, we downgrade to Hold | Debenhams (DEB LN) Shares should bounce on successful completion of 3-peak challenge | First Derivatives (FDP LN) Acquisition of Kx consulting business | Greggs (GRG LN) Tricky Q4 successfully navigated to deliver an in line FY15 | IQE (IQE LN) Major Wireless customer renewal underpins FY’16 forecasts | Minds + Machines Group (MMX LN) Acquisition of .boston | Premier Technical Services Group (PTSG LN) In line conclusion to impressive first year post IPO
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12 Jan 16
Designers at the heart of Debenhams
Yesterday’s fashion preview event provided another opportunity to assess Debenhams’ product development pipeline and it didn’t disappoint. Although only providing a snapshot of what lies ahead in 2016, the key take-away was positive and highlights widening appeal, improving mix and value in the Designers at Debenhams portfolio. This underlying value suggests to us the strategic refocus on promotions can yield further benefits. The stock looks oversold in our view having drifted back towards 80p, trading on a cal16 P/E of <10x (<5x EV/EBITDA). The yield is 4.3% and the recent final yields 3% and is available until 4th December. This weakness represents a trading buy opportunity.
26 Nov 15
Improving momentum from strategic changes offer valuation upside
Full year PBT/EPS came in a smidge better than expected with low single digit EBITDA/EBIT growth in H2 despite adverse FX. Although forecasts weren’t affected at the time we believe DEB did suffer a drag due to the awful A/W14 conditions in H1. Given guidance on margins and costs is in line with expectations, we would argue that there is some gas in the tank regarding consensus forecasts pending a successful A/W15 season. Trading has been encouraging so far in current trading. The boardroom shenanigans have resulted in the CEO announcing his retirement in 2016. By then the strategic initiatives should be bedded in well enough to avoid disrupting progress. Shares can advance on <10x P/E.
22 Oct 15