US Edition Debenhams
33½p+1p
Questor says Avoid
In which case, they won’t have been too disappointed. The dividend was more than halved to 3p on the board’s “current view of prospects for 2009”.
They can’t be that good, as Debenhams revealed that, while like-for-like sales for the year were down 0.9pc, that had accelerated to 4.2pc for the six weeks since the year end, although gross margins did rise 50 basis points.
For the year just gone, pre-tax profits slumped 6.4pc to £106m and no one at the company pretended that figure was going up next year.
In truth, it could have been a lot worse and the numbers were no worse than expected. The management is among the best in the business and has won plaudits for cutting costs, lowering capital expenditure and managing stock as best it can with a clever use of space. There is much they can still do.
The company – still the UK’s second-largest department store chain – has even picked up market share in all its key categories, thanks in part to the success of the Designers at Debenhams ranges. But the legacy issues of debt and rent that remain from going private and the return to the market have not gone away.
Meanwhile, the macro-economic environment for 2009 and 2010 looks worse by the day. Debenhams still holds out some hope that Christmas may still be good but few in the City share that view.
Of course, much of the bad news has already been priced in and it could easily be argued that the shares could barely fall any further.
Indeed, on a traditional price/earnings basis, Debenhams looks cheap, but, given the £1bn of debt, the discount to the sector is more than deserved.
Even if the stock has bottomed out, it is hard to see what could drive it materially higher in the short term.
It would take some courage to invest in any retail stock in the current environment, and even more so to choose a retailer with such high operational and financial gearing as Debenhams. One for the brave only.
Filtrona
129p-6¾p
Questor says Buy
Filtrona, the plastics and fibre products supplier that provides cigarette filters, laminates for passports and parts for Boeing, saw its share price fall 6.5pc after saying performance in 2008 is likely to be at the lower end of expectations.
The reasons for the downbeat interim management statement included disruption caused to production in the US by Hurricane Ike and the industrial action at Boeing, where 27,000 machinists have downed tools for the past two months.
However, these problems should not last forever and, going into a possible recession, Filtrona has some advantages. The business should benefit from the falling cost of oil and commodities and the weakening value of sterling against the dollar.
Because of changes in exchange rates, Filtrona, which accounts in sterling but has 40pc of its business in the US, was able to report sales growth of 4.5pc in the three months to the end of September, despite a 3.5pc fall in organic terms.
Shares in the business have more than halved since their 2007 peak of 293p but conditions may be about to turn slightly more in its favour.
Filtrona says it is preparing for a “more difficult trading environment” in some of its markets as the global recession bites and inevitably hurts demand, but the company offers a diverse range of products with defensive qualities and its biggest division, its protection and finishing products, performed well during the past quarter.
On a valuation of 7.5 times 2009 earnings, now could prove a smart time to invest.
St Ives
101½p+23¼p
Questor says Hold
St Ives shares have lost more than two-thirds of their value since last November, but the one- time Harry Potter printer looks to be turning the corner.
The company’s full-year results showed its push towards “value-added” services, such as polybagging, has proved successful with pre-tax profits for the year up almost £5m to £32.4m.
However, St Ives chief executive Brian Edwards warned “the economic environment is more challenging than ever before”. The country’s biggest independent printer is being hit from both sides as costs soar while publishers ramp up the pressure for cheaper printing.
A collapse in advertising is likely to lead to a decline in revenue from its magazine division, but books, which account for almost 20pc of revenue, usually fare better in downturns.
St Ives is undoubtedly in a tough industry, but it is well placed to pick up extra business from the collapse of competitors. Mr Edwards said the company has already won back work from rivals who “priced themselves too low and failed to deliver”.
The pension deficit stands at a hefty £34.8m, but the company has put in a further £14m, making it appear more manageable. Meanwhile, St Ives has signed major contracts with Royal Mail and Sainsbury’s which will generate almost £60m in revenue in the next full year.
With a chunky dividend and on a multiple of six times earnings, hold on.