N Brown recovery remains on track

by Graeme Evans from interactive investor |

It's come a long way, but may have much further to go following this encouraging piece of news.

The rebuilding job at N Brown (LSE:BWNG) caught the eye of investors today as the online fashion retailer showed welcome signs of progress following last year's hefty dividend cut.

Shares jumped 6% to 139p after the owner of brands including JD Williams, Simply Be and Jacamo posted a "solid trading performance" for the first quarter. Group sales were down by a better-than-expected 1.3%, underpinned by 8% growth in the company's credit book.

Faced with the decline of its legacy catalogue business, N Brown has been working to accelerate its digital performance, including through a better customer experience and making greater use of its data in order to improve operating efficiency.

The turnaround plan under new chief executive Steve Johnson has resulted in some pain for shareholders, with last year's 9% dividend yield now closer to 5% after the pay-out was rebased to a more sustainable level in October.

Noting the current yield and today's unchanged forecasts, house broker Shore Capital said a forward price/earnings (PE) multiple below six times suggested that N Brown shares were mispriced. That's a view echoed by analysts at Peel Hunt, who said that the shares should be trading with a PE of 8.6x and with a potential target price of 200p.

Source: TradingView Past performance is not a guide to future performance

Peel Hunt says it was significant that N Brown had stabilised its earnings performance thanks to cost efficiency progress, particularly through the digitalisation of marketing spend.

The broker said: "Currently, we believe N Brown should be trading on a modest sector discount. Greater visibility on marketing KPIs will drive greater understanding of the business, in our view, and unlock the potential for a higher rating."

N Brown's recent problems have been caused by the sales and margin performance of some of its lesser brands, as well as the group's catalogue-based offline business.

The company is currently working through a short-term revenue hit from the falling catalogue sales, but adds that this presents an opportunity to drive profitable growth through improved efficiency as more sales are achieved online.

Today's figures show that 83% of product revenues were digital, up from 80% in May's annual results. Digital sales rose 3% in the quarter, with particularly good performances from menswear brand Jacamo and from Ambrose Wilson, which serves older women and has increased its ratio of online sales by 13 percentage points year-on-year.

Total product revenues for the quarter were still 5.4% lower due to the drag on sales caused by the declining and unprofitable catalogue business.

Analysts at Jefferies said the overall sales decline of 1.3% for the period was marginally ahead of the consensus for 1.7% and its own forecast of 1.4%. They said N Brown looked to be moving in the right direction, adding: "Macro headwinds remain but we are hopeful N Brown can grow pre-tax profits in the 2021 financial year."

The company reiterated all its previous guidance for the 2020 financial year today, including net debt of about £450 million by the year end.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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