The Most Attractive Retail Share I Know

Published in Company Comment on 3 May 2012

Profits and dividend up, share price down.

The most attractive retail share I can think of right now is N Brown Group (LSE: BWNG).

With its full-year results, the FTSE 250 home-shopping specialist has just announced a 5% increase in revenue, a 7% uplift in adjusted earnings per share, a 5% hike in its dividend and a positive outlook.

Yet, despite its collection of indicators that all seem to be heading in the right direction, the shares have fallen around 19% to about 235p since this time last year. That means you can pick them up on a forward yield of around 6%, twice covered by expected earnings in 2013.

The inside story

The thing I most like about Brown's story is the sound progress in penetrating the internet market. E-commerce sales have increased by 16% to £377m over the year to make that market around 50% of total sales.

Traditionally, Brown has generated sales of its clothing and footwear lines through catalogue sales. I think the future of home shopping is online, and it seems likely that next year's results will show further progress in that arena.

The company is also making tentative progress expanding overseas with a small presence in Germany, and fast-paced growth from the US, where it sees a big opportunity. This year US sales increased 500% to around £5m.

Record of growth

Brown has traded well through the recession, and investors have seen the dividend increase by around 44% over four years. Cash backed growth in revenues and profits have supported that progression.

 20082009201020112012
Revenue (£m)611663690719753
Net Profit (£m)5662637281
Net cash from operations (£m)3239925757
Dividend9.06p9.19p10.79p12.41p13.03p

Will this growth continue? The CEO thinks so, saying that, despite tough trading in 2011 -- which he expects to continue -- the company's focused strategic plan positions the group for further progress during the current year.

Well positioned

It's not easy for retailers just now, but with debt under control at around 60% of net asset value, a trailing dividend payment covered about twice by free cash flow and a solid record of trading, Brown looks well positioned to benefit as consumer finances recover.

At the recent share price of 235p, the shares can be picked up on a trailing earnings multiple of about eight. If nothing else, they're worth considering for that fat dividend, which looks very attractive to me.

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> Kevin owns shares in N. Brown Group.

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Comments

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SevenPillars 03 May 2012 , 10:29am

I think what this shows is just how difficult it is right now to make investment decisions when looking to buy retail stocks. There are some bargains out there, some more risky than others, but until the market starts to view them in a more positive light the bad and the good go down together. Some have done surprisingly well despite austerity, N Brown looks to be one of them, but one thing that I would bet on with this company right now is that it is one perceived bad interim or final result, or bad quarter away from a much lower share price. That's the problem and until the consumer economy shows some stability and starts to pick up again, good performing companies like Brown are likely to continue to underperform regardless of their own solid performance.

naltrom 04 May 2012 , 12:58pm

Having taken that sort of market sentiment into account as expressed by SevenPillars (of wisdom), I still felt it was worth taking the shares on board recently at 226p with the hope that BWNG will continue to perform as they have shown they have been able to do against the prevailing conditions.

iblanked 07 May 2012 , 7:37pm

I checked BWNG accounts and found they charge their customers 40% p.a. which even after 10% bad debts should leave them with more profit than they make from selling clothing .I sent an email to company asking for clarification but never received a reply
Anyone else found out if this is a clothing retailer or a finance company?

biraj 19 Jul 2013 , 11:33am

In the retail sector there has been some considerable growth in recent times. But the stores need to compete with online outlets now, more and more shoppers are now making a beeline for these virtual shops. I was looking for punk dresses recently and my friend suggested me to find killer punk dresses at angryyoungandpoor.com.

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