Debenhams Ord 0.01p (DEB)

Company overview

Debenhams is a leading UK and Irish department store operator with over 140 stores in operation. Employing over 20,000 staff in total, the group also operates 30 international franchises in 14 overseas locations.

HL Update (15 April 2008)

The sale of the company by a private equity consortium to stockmarket investors at a price of 195p per share now appears to be a distant memory (May 2006), with both profits (-12.4pc) and like-for-like sales (-0.7pc) in decline. Furthermore, group debt, whilst trending lower, is still considerable (gearing of over 85pc against 50pc at Marks & Spencer) and gross profit margins remain pressured. On the positive, a number of parties such as Icelandic retailer Baugar retain footholds in the company and the dividend has at least been maintained. Overall, with the outlook for consumers still looking increasingly difficult, set against an already severe adjustment in the share price (down 66pc over the last year), market consensus opinion is currently neutral in tone.

HL Comment (15 January 2008)

Having been previously removed from the stockmarket via a private equity buyout back in December 2003 (Baroness Retail Limited, consisting predominantly of US private equity consortium Texas Pacific and Merrill Lynch) the group then re-listed back in May 2006 at a price of 195p per share. Since then, whilst sceptics have argued that the private equity backers have probably removed most of the value for themselves, only to sell the group back to investors at a higher price, management have remained adamant that further progress can be made and that profits can be increased via a continued store expansion programme.

The group’s post Christmas trading statement, whilst not be as bad as many analysts had feared beforehand, did see management emphasizing caution for 2008. Like-for-like sales over the important Christmas period rose by 2.2pc, while overall total group sales increased by 4.4pc. However, when long term time frames were assessed, growth in like-for-like sales had deteriorated from the full year results announced back in October 2007.

Acting for positive investor considerations, like-for-like sales were at least positive, various sizeable share holdings in the group could eventually be used to launch a takeover of the company and the shares have already fallen over 60pc (as of 15Jan08) during the last year alone. On the negative front, the store expansion programme is only replicating the strategy of many big retailing groups – spreading fierce competition – group cost efficiencies may have already been enjoyed by previous private equity owners and sales growth does not necessary translate into profit growth. For now, market consensus opinion denotes a weak hold.

All yield figures are variable and not guaranteed.

Fundamental Data