New value analysis of Debenhams Plc (DEB:LSE) 2018
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New Value Analysis of Debenhams Plc (LSE:DEB)
A new value analysis of Debenhams Plc (LSE:DEB), a company listed on the London Stock exchange, has been added to our research pages here.
DEB is an international multi-channel retailer with its origins in Britain. DEB has 250 department stores in 27 countries, and online presence in 60 countries.
The last time we did the value analysis of DEB was just over a year ago and the price was around 43p. At the time the Debenhams Plc common stock was very cheap. Since then, as you can see in the chart the price has declined 77%, which makes the original analysis look flawed.
There have been three main news items from DEB, that can be loosely described as ‘profit warnings’ in January, April and June 2018. In all the ‘profit warnings’ sales declined by somewhere 1-2%. A 1-2% decline in sales does not warrant a 77% decline in the share price.
DEB has cut the dividend to 0.5p per share for the first payment in 2018 Financial Year. This is a cut of 48.8% since the same time last year. This possibly explains the price decline, but if the final dividend for 2018 is 0.5p, then the current yield is around 6%. If the second dividend in 2018 is any higher than 0.5p then the yield starts to look very attractive.
The June 2018 update gives a pre-tax profit estimate of £35-£40 million. At the low end of the estimate this is a 27% decline in profit from the Full Year 2017 results in September 2017. If tax is the same as 2017 the decline in profits is 52%, which still doesn’t justify a 77% decline in the share price.
DEB has reported a big decline in profit against a relatively small decline in revenue. The difference between he two rates of decline are related to depreciation and exceptional items. It is important for value investors to have a view of these two items, but the decline in profits may be exaggerated by the depreciation and exceptional items.
DEB still looks cheap, but the recent price decline illustrates why it is important to mange risk. Investors can manage risk by making investments over a period of time and by ensuring diversification in an investment portfolio.
There is risk in owning the DEB common stock, but a lot of the risk has been reduced by the reduction in price of the common stock.
To find out if a value investor should consider an investment in Debenhams Plc common stock click here to download the new analysis.
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