Debenhams
4.4% Estimated dividend yield
The market plainly got Debenhams wrong. The market got Wm Morrison wrong, too, for different reasons. Other retailers seem to have had a decent enough Christmas, contrary to expectations. Whether this is a general trend remains to be seen.
The market should not have got Debenhams wrong because its decent performance over the season was entirely down to management, under Michael Sharp, its departing chief executive, doing what it said it would.
It improved, from a low base, the operations in Denmark and Ireland. There are no detailed figures, but the fact that there was a significant currency effect between reported like-for-like sales in the run-up to Christmas and those on a current currency basis suggest that those overseas operations significantly outperformed. Indeed, we are told that British like-for-likes were only slightly ahead.
This is a creditable enough performance, given the weather, and comfortably outpaces Marks & Spencer’s non-food sales, reported last week. Debenhams, as it said it would, is cutting the amount it discounts or sells on promotion, increasing the amount of stock that was shifted on a full-price basis by 5 per cent year-on-year.
It is reducing the total amount of stock held, down 5 per cent year-on-year and 10 per cent on a two-year basis. It is reducing the proportion of sales from clothing, now 45 per cent, while building sales of more discretionary items, such as beauty products, gifts and homewares.
Those clothing ranges were ordered more on an “open to buy” basis, delivered more flexibly to match actual sales patterns, while more lightweight items were sold. If we have a cold snap, other retailers with more heavy duty coats may do better, but that’s the way it goes.
Finally, Debenhams is increasing online and click-and-collect sales. All this is textbook stuff, though, to be fair, doubters remain.
Debenhams shares, up 10½p at 76½p, have more than reclaimed the losses since the start of the year amid fears of a poor Christmas. They sell on about ten times’ earnings, not expensive on a historic basis. They strike me as among the better options for exposure to the British high street.
My advice Buy long term
Why Debenhams is carrying out its strategy exactly as set out, and better-than-expected Christmas trading is the natural consequence
Michael Page International
5,3% rise in 4th qtr gross profits
It is hard to know how seriously to take the fourth-quarter slowdown in growth at Michael Page International, given the recruitment sector’s reputation as an economic bellwether. Robert Walters, a rival, was upbeat on Monday, but admitted its own British business had suffered.
This is more exposed, though, to investment banks and the fallout from Chinese markets. Michael Page’s experience was that, while the same number of jobs was coming up as employees decided to move on, employers in the UK were delaying filling them. Hirings may bounce back over the next few weeks, therefore.
Fourth-quarter fee income in the UK was up by 2.1 per cent, sharply down from 9.6 per cent over the full year, while across the group a rise of 5.3 per cent in the quarter, at constant currencies, was about half that expected.
The market took its own view, marking the shares back 36p to 410½p. They sell on more than 20 times’ earnings and yield almost 3 per cent, and another special dividend expected this year will give support at this level. I would not be buying until the picture is clearer and I suspect that henceforth figures from the sector will be examined more closely than usual.
My advice Avoid for now
Why Slowdown may not be significant, but worries remain
Saga
Dividend yield 3% plus
The insurers have been hearing how well they are prepared for the EU’s Solvency II directive. For Saga, the answer appears to be pretty well. The company, floated in May 2014, has its insurance vehicle registered in Gibraltar for historical reasons and yesterday’s trading statement suggests that, in the view of the regulatory authorities there, it remains well capitalised.
Saga is looking at just how much capital it needs within the business. It has been reducing this requirement by moving to a model whereby a panel of insurers, including its own business, compete in motor underwriting. Something similar has been done already on the home insurance side.
So, at some stage, this will free up excess capital to be redeployed elsewhere. Some analysts are convinced that this means special dividends as soon as this financial year. I believe a more likely use for the money is to pay down debt further; the company has indicated that it will be more generous with ordinary dividends in future.
The strategy has always been to expand the Saga brand elsewhere and the financial services joint venture with Tilney Bestinvest, cross-selling products to its existing customer base, is well under way. The company is signed up to take delivery of another cruise ship in 2019, with an option for a second.
Saga shares, up 6½p at 204½p, are now comfortably above their 185p flotation price again. They yield a bit above 3 per cent. I have suggested buying them for the long term before, at a lower price, but I suspect future progress may be slow.
My advice Avoid for now
Why There seems no obvious catalyst for a rise in the price
And finally . . .
McBride has had its problems in the past coping with the packaging demands of the big grocers, stuck in the middle of the supermarket wars. The newish management team is pursuing a strategy of improving margins by not chasing less profitable business and reducing the range of products it sells, so improving efficiency. The trading update suggests that this strategy is moving ahead and half-way figures should show progress. The shares have been strong since the autumn and went ahead another 7 per cent yesterday.
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