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Still all to play for at Debenhams

Debenhams is showing signs of improvement, but with the all-important Christmas trading period still ahead, a lot could still go wrong
October 24, 2014

It was a tale of two halves for Debenhams (DEB). The first half was poor and operating profit fell 23 per cent after a catastrophic Christmas in the UK. But second-half trading improved as measures to turn the business around started to take effect.

IC TIP: Hold at 65p

Fewer days on promotion and more conservative sales targets led to a significant rise in full-price sales, while tighter buying resulted in the retailer ending the year with 5 per cent less stock. These factors contributed to higher margins and a 3 per cent rise in second-half profits. Debenhams is also making progress on the multi-channel side, having finally introduced a full range of online delivery options, including next-day click and collect. Concessions are being trialled in the run up to Christmas to make better use of the vast estate, including Sports Direct, Monsoon, Mothercare and Costa Coffee. Meanwhile, the international stores performed well and delivered a 15 per cent rise in operating profit to £32.3m.

But investors shouldn't get too excited. Debenhams still faces the crucial Christmas trading period, albeit on a better footing, and chief executive Michael Sharp has warned that this is "just the start of the journey".

Broker Cantor Fitzgerald expects profit of £120m, giving EPS of 7.8p.

DEBENHAMS (DEB)
ORD PRICE:65pMARKET VALUE:£792m
TOUCH:64-65p12-MONTH HIGH:111pLOW: 57
DIVIDEND YIELD:5.2%PE RATIO:9
NET ASSET VALUE:63p*NET DEBT:47%

Year to 30 AugTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20102.121407.5nil
20112.211609.13.0
20122.231589.83.3
20132.281399.23.4
20142.311067.13.4
% change+1-24-23-

Ex-div: 4 Dec

Payment: 9 Jan

*Includes intangible assets of £893m, or 73p a share