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Are Card Factory special dividends under threat?

The card and gift wrap retailer has started to shy away from its bullish stance on shareholder returns – and investors are worried
September 26, 2017

Card Factory (CARD) has surprised investors on two counts. First, half-year pre-tax profit – which was expected to contract year on year – fell short of some analysts' expectations due to higher than expected wage costs and adverse foreign exchange rates. Second, despite another 15p special dividend (the third since the May 2014 IPO), squeezed cash profits and a step-up in group debt has prompted the board to “review the amount and timing” of future special returns. This was enough to send the shares plummeting by over 15 per cent on results day, while analysts at Peel Hunt chose to revise their forecasts downward. The broker now expects pre-tax profit of £85.4m (from £87.8m) for the year ending January 2018, giving EPS of 19.5p (from £85.1m and 19.5p in FY2017).

IC TIP: Hold at 308p

Chief executive Karen Hubbard did her best to mitigate the damage, insisting the new perspective on dividends doesn’t mean the group will stop special returns altogether; just that the board doesn’t want to “bake in” any specific amount while trading conditions remain variable. Ms Hubbard added that the group was “really confident” heading into the second half and, crucially, the peak Christmas trading period.

CARD FACTORY (CARD)  
ORD PRICE:308pMARKET VALUE:£1.05bn
TOUCH:307-309p12-MONTH HIGH:359pLOW: 232p
DIVIDEND YIELD:3%*PE RATIO:17
NET ASSET VALUE:71p**NET DEBT:60%
Half-year to 31 JulTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201616927.06.32.8
201718023.25.52.9
% change+6-14-13+4
Ex-div:9 Nov   
Payment:15 Dec   
*Excludes special dividend of 15p in FY2017 and an additional 15p in respect of the half year
**Includes intangible assets of £331m, or 97p a share