Interactive Investor

N Brown: The retailer taking a big PPI hit

A shares boom through the spring is unwinding fast, hit today by a 'clearly unwelcome' PPI development.

12th September 2019 14:19

Graeme Evans from interactive investor

A share price boom through the spring is unwinding fast, hit today by a 'clearly unwelcome' PPI development.

PPI's sting in the tail continues to be felt by investors after retailer N Brown (LSE:BWNG) followed Lloyds Banking Group (LSE:LLOY), Barclays Barclays (LSE:BARC) and Royal Bank of Scotland (LSE:RBS) in reporting a huge volume of last minute claims.

Today's PPI provision of up to £30 million is a setback for N Brown management, who have won plaudits for their progress in creating a digital future for the legacy catalogue business.

The update also caused another step down for the share price, which is creeping lower again after an initial wave of optimism this summer following May's full-year results. House broker Shore Capital has kept faith, however, despite today's "clearly unwelcome" PPI development.

Shore's respected retail team of Darren Shirley and Clive Black said they continue to see the current financial year as a watershed for the company as it works through "painful cash headwinds" from legacy issues such as PPI claims on consumer credit.

Once these are out the way, they are hopeful that the company's more robust underlying cash flow credentials will come to the fore. The stock currently trades with a forward price/earnings multiple of below five times, while offering a dividend yield of 6.4%.

The lowly rating reflects the continued impact of falling offline catalogue sales, as well as the weaker revenues and margin performance of some of its lesser known brands. 

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

A focus on customer experience and data intelligence has led to much stronger digital growth for frontline brands including JD Williams, Simply Be and menswear retailer Jacamo. In June, about 83% of product revenues were digital, up from 80% in May's annual results.

Financial services also performed strongly, with revenues up 10.8% in the last year to help overall adjusted profits to climb 2.5% to £83.6 million. At the bottom-line, however, the Manchester-based group made a loss of £57.5 million after incurring £145.6 million of exceptional items, including from store closures and £45 million in customer redress.

This redress figure was up from £40 million a year earlier and included an additional provision of £22.7 million made in the second half of the year.

In the final month before the August 29 deadline for PPI claims, N Brown said it received 10 times the average volume of PPI information requests and complaints seen in previous months. This equates to 110,000 in August and more than 40,000 in the final week before the deadline.

The group is working through these claims, and while it is not possible to be precise about the outcome it says it expects it will need a provision of between £20 million to £30 million in half-year results on October 10. Full-year net debt guidance is now running at between £460 million and £490 million, compared with £440 million to £460 million previously.

Whereas N Brown has set aside £108 million on financial redress so far, Lloyds Banking Group has already paid out £20 billion in PPI compensation. It said on Monday that it will need up to another £1.8 billion to cover claims, prompting it to suspend its share buy-back programme.

RBS said last week it faced additional costs up to £900 million, while Barclays has set aside between another £1.2 billion and £1.6 billion. Lloyds reported that it had received a weekly total of between 600,000 and 800,000 PPI information requests and complaints in August, well above its previous assumption of around 190,000 a week.

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