It was probably not how Michael Sharp, Debenhams’ chief executive, wanted to bow out, with a reverse in like-for-like sales and a reduction in expected margins triggering a 6 per cent fall in the share price, but there is not a lot in the retailer’s trading update to alarm investors.
Mr Sharp is continuing to implement the fourfold strategy in place over the past year or so. Debenhams is improving its online sales, though that rate of growth is inevitably slowing as it laps some difficult competitors.
There is less reliance on discounting — actually, the difficult trading in the clothes market meant there was exactly the same number of days of sales as a year before, whereas in a more benign market one might have hoped for a further decline.
Debenhams is managing stock more efficiently, which means that it will reach the August financial year-end without large amounts of unsold summer clothing.
The company is continuing to fill that one million sq ft of previously empty space, about three quarters of which will be occupied by Christmas, with the rest due to be filled by the spring.
This has meant bringing in other concessions, such as Claire’s Accessories and various casual food options such as Costa Coffee, Patisserie Valerie and Franco Manca, the pizza operation. The percentage of sales coming from clothing, already down by ten percentage points over the past five years to about 45 per cent, will fall further.
Some worry that such diversification will see Debenhams lose focus on its core product — it didn’t do Tesco much good. The question is whether the difficulties in the clothing market this year, as witnessed by the sales decline announced by Hennes & Mauritz, the Swedish retailer, yesterday, is a temporary blip or a long-term trend. If it is, diversification may be no bad thing.
There are reasons to suppose the slowdown in clothing sales, which led to a 0.2 per cent fall in like-for-likes at Debenhams, may be driven by temporary factors such as the timing of holidays, the weather or Brexit concerns. The company is now in a much better place. The shares, off 4½p at 69¾p, sell on nine times earnings with the support of a decent yield, but I am not sure I would be buying now.
MY ADVICE Avoid
WHY Debenhams is in much better shape, with much of the strategy already in place, but the clothing market remains a difficult one
Elementis
Elementis seems to specialise in announcing the blindingly obvious and then seeing the market take it entirely amiss. The speciality chemicals producer serves a range of industries. Yesterday’s trading statement makes it clear that all is progressing well enough across most of the group, Asia Pacific is returning to growth and even some stability is returning to its oilfield activities after the inevitable downturn in the wake of the crude price collapse.
Its chromium division sells in areas such as automotive production and leather tanning and, particularly in eastern Europe, the strong dollar has been a problem, making prices less competitive against local competition. The Russian and Kazakh currencies have been especially affected. The company has warned about this twice this year already, but the shares still fell 17¾p to 208¾p.
Elementis hands out half its year-end cash balances to investors. The rate of cash build-up and so the potential for this year’s special dividend are unchanged and this means the shares offer a 5.4 per cent yield. This is attractive but I would worry about further share price falls.
MY ADVICE Avoid
WHY Potential for further surprises is there
Tullett Prebon
It has never been entirely clear what concerns the US Department of Justice had over the proposed deal between Icap and Tullett Prebon that had the former handing over its voice-broking business to Tullett, but the American authorities demanded further information this year.
It probably had to do with one outcome of the deal, which would have resulted in Icap holding a 19.9 per cent stake in its former
bitter rival. It was never clear, to me at least, why Michael Spencer, Icap’s chief executive, even wanted a stake in Tullett, which operates in a market that he would be exiting. The dividend income would be useful — the shares offer a decent enough yield.
Now the two have cut the Gordian knot, with Mr Spencer agreeing that all the shares to be handed over in return for his business, equivalent to 56 per cent stake in Tullett, will instead be distributed to Icap shareholders in proportion to their stake in his company.
Problem solved, as is the decision to sell a part of Icap’s oil broking business, the only condition set by the Competition and Markets Authority. As I suggested, this was never going to be a dealbreaker as it is a tiny part of the business.
Those investors were probably quite happy to take those extra Tullett shares, too, because of that 5.3 per cent yield on them, off 3½p at 317½p. Tullett investors should be happy enough with the outcome, too. The deal will now go ahead unhindered by the year end, to the advantage of both sides.
MY ADVICE Buy
WHY Deal looks set to sail through and yield is attractive
And finally...
I suggested last week that Safestore was in pole position to add to its estate with the purchase of Space Maker, which operates 12 self-storage depots, mainly in the south. Safestore has been managing these since 2010. The deal was duly struck yesterday at the previously agreed price of £43 million upfront and allows an immediate boost to the space available, in a market where it is not always easy to find new locations. The potential for Safestore remains the amount of unlet space in its portfolio.
