Barclays sees higher profit potential at Debenhams
Broker Barclays has upgraded Debenhams, saying the UK department store group's profits in 2014/15 could start bouncing back to levels last seen in 2013.
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Barclays moved Debenhams to 'overweight' from 'equal weight' and raised its price target to 90p, highlighting three reasons why it believed the shares could make significant gains "imminently and over the next 12 months".
Debenhams may triple "next day delivery" (NDD) orders this year after introducing a cut-off time of 10pm, which Barclays described as competitive in the UK. It also expects NDD to save £8m in costs in 2014/15, 6% better than the broker's previous pre-tax earnings before interest estimate.
Barclays expects Debenhams to recover at least half of the gross margin it lost last year as management reduced the number of promotions, although it forecast a "negative mix effect" from the introduction of new concessions.
The broker added that Sports Direct concessions could add £5m to the store chain's incremental profitability this year and next year, representing a 4% uplift to its previous EBIT estimate.
Barclays added that Debenhams, which has been pursuing a strategy of trying to use space in its stores more effectively, could fill about 40% of its under-used space with Sports Direct concessions.
Debenhams, in which Mike Ashley's company has a 12.7% stake, launched Sports Direct concessions in August and now has four, with more potentially in the pipeline.
Barclays added: " We expect earnings per share growth to pick up from a low base."
Shares in Debenhams rose 0.15p or 0.2% to 71p at 12:29 in London.
Barclays upgraded Debenhams to 'overweight' from 'equal weight' and raised its price target to 90p, highlighting three reasons why it believed the shares could make significant gains "imminently and over the next 12 months".
Debenhams may triple "next day delivery" (NDD) orders this year after introducing a cut-off time of 10pm, which Barclays described as competitive in the UK. It also expects NDD to save £8m in costs in 2014/15, 6% better than the broker's previous pre-tax earnings before interest estimate.
Barclays expects Debenhams to recover at least half of the gross margin it lost last year as management reduced the number of promotions, although it forecast a "negative mix effect" from the introduction of new concessions.
The broker added that Sports Direct concessions could add £5m to the store chain's incremental profitability this year and next year, representing a 4% uplift to its previous EBIT estimate.
Barclays added that Debenhams, which has been pursuing a strategy of trying to use space in its stores more effectively, could fill about 40% of its under-used space with Sports Direct concessions.
Debenhams, in which Mike Ashley's sports retail chain has a 12.7% stake, launched Sports Direct concessions in August and now has four, with more potentially in the pipeline.
Barclays added: " We expect earnings per share growth to pick up from a low base."
Shares in Debenhams rose 0.15p or 0.2% to 71p at 12:29 in London.