RBC upgrades Debenhams, cites undemanding valuation
RBC Capital Markets upgraded Debenhams to ‘outperform’ from ‘sector perform’, with a 100p price target.
Debenhams
1.83p
15:45 08/04/19
FTSE 250
19,391.30
17:09 19/04/24
FTSE 350
4,341.08
17:09 19/04/24
FTSE All-Share
4,296.41
17:08 19/04/24
General Retailers
3,864.64
17:09 19/04/24
It said the share price is factoring in no growth, but the bank expects it to report is first full-year pre-tax profit growth in four years on 2 October. It also expects the company to make further progress in the year ahead.
It noted that the valuation is undemanding, with Debenhams trading at a price-to-earnings discount to the sector of around 40% and offers a free cash flow yield of around 11% and a 4.5% dividend yield.
“Debenhams remains strongly cash generative which is allowing it to de-lever and should enable it to boost shareholder returns in time,” said the Canadian bank.
RBC said Debenhams is improving its offer, utilising surplus space better and has a better online proposition and inventory control.
“Debenhams has a mixed track record and faces some challenges as a fairly mature department store chain but remains a very well-known brand and cash generative business.”
At 1257 BST, Debenhams shares were down 1.1% at 74.85p.