Wednesday 12 February 2014

Analysis of Debenhams

A British cosmetics and retail company

Company: Debenhams PLC

Business: A British multi-brand cosmetics and retails company. Besides from having their own design labels they also sell all kind of well-known brands in their stores. They have besides from their own stores also franchise stores especially in Asia. Their online stores are well developed and even in the stores you can make online orders at machines to have things delivered home.

Active: Main activity is UK, Ireland and Denmark with around 172 stores and in total they have 240 stores across 28 countries. With their online stores they are available in 70 countries.

P/E: 7.4

contrarian values of P/E, P/B, ROE as well as dividend

The P/E of Debenhams is excellent with 7.4 and the P/B is ok on the border of too high with 1.3. Still this gives a very clear buy signal from Graham! Their earnings to sales are ok with 6% and the ROE is very nice with 17.2%. The book to debt is however a bit on the low side with 0.5. The growth in the last five years has been yearly 3.6% which is pretty ok and this gives us a motivated P/E of around 13 to 156 which means that the shares are today undervalued by the market. They pay a very nice dividend of 4.1% which only correspond to 30% of their earnings so they should be able to keep that up! If we compare with for instance H&M then they do also pay around 4% in dividend BUT that correspond to 93% of their earnings.

Conclusion: Debenhams is indeed looking very nice and both Graham as well as I say buy on this one based on the figures. I would however like to take a closer look at a store and the amount of visitors they have before I would really decide to step in. It is also very interesting that they have a wider presence with their online stores than what they have with physical stores especially since it is much cheaper to establish yourself in a new country online before you step in with full force and stores. Debenhams will be added to my stock of interest list with the next update.

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1 comment:

Fredrik von Oberhausen said...

When I was in Prague I saw my first Debenhams store and of course I directly ran in there to take a look at the fashion, the prices and more general to get a feeling for how it worked.

I was not impressed. Several 70% discounts signs were up. the store was packed with products and it was so dense that one could not even get an acceptable overview of what was in there.

To be honest it felt like a low cost store with high prices and based on what I saw there I decided not to make an investment in Debenhams.