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A lot to live up to for Carpetright

Carpetright is showing tentative signs of a recovery, but a sky-high rating is too rich
June 26, 2012

Carpetright enjoyed a strong end to a financial year marred by profit warnings. The results give some credence to recovery hopes, but there is a huge amount to do to deliver on the recovery expectations implied by its shares' lofty valuation, which represents just under 11 times peak earnings.

IC TIP: Sell at 686p

As comparisons with past trading periods got easier for the group in the second half, like-for-like sales in the UK picked up. Broker Peel Hunt calculates that second half like-for-like sales growth of 1.9 per cent implies that the group was ahead by more than 30 per cent over the final weekend of its financial year, which corresponded with the Royal Wedding weekend in 2011. But trading is volatile and analysts forecast low single-digit like-for-like growth in the coming year. Bigger hopes come from self-help initiatives, including a store refurbishment programme and, with leases on 88 stores expiring over the next five years, strategic closures. Costs are being brought down and new chief executive Darren Shapland is expected to give further impetus to the efficiency drive.

While the UK is showing tentative signs of promise, hopes for Europe are more subdued given the financial crisis enveloping the region. But active portfolio management, including the sale and leaseback of nine stores, helped to significantly reduce net debt from £66m to £19m.

Peel Hunt forecasts 2013 pre-tax profits of £8.3m and EPS of 9.1p (£4m and 4.5p for 2012).

Carpetright (CPR)
ORD PRICE:686pMARKET VALUE:£463m
TOUCH:683-68612-MONTH HIGH:753pLOW: 375p
DIVIDEND YIELD:NILPE RATIO:42
NET ASSET VALUE:105p*NET DEBT:27%

Year to 28 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200852259.563.252.0
200948316.717.68.00
201051722.323.516.0
20114876.606.808.00
201247213.516.4nil
% change-+105+141 

* Includes intangible items of £61m, or 91p a share