Blue Chip: Debenhams looks like a bargain buy
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Your support makes all the difference.DEBENHAMS is the well-known department store group spun out of Burton Group - which has since been renamed Arcadia - in January to go its own way. Last week, it announced its maiden set of interim figures, and what a solid performance it turned in. Alongside a sharp rise in profits, it announced an aggressive programme of opening new stores.
The group plans to open another 15 stores, to take its total number of outlets to 100. The company believes it has only covered about 60 per cent of the UK. The total cost of the expansion plan is pounds 235m.
What was pleasing about the figures was the 16.3 per cent rise in pre- tax profits to pounds 77m. Like-for-like sales grew 5.3 per cent, with total sales up 7.8 per cent to pounds 770.2m. The likes of House of Fraser have shown only a 2.5 per cent gain in like-for-like sales, while Selfridges has dropped 2.5 per cent. Debenhams' 0.4 per cent gain in margins will have brought relief to investors worried by a gloomy high street picture.
Debenhams is also busy generating cash, and concerns that it is expanding at the wrong stage of the economic cycle should be mitigated by its low gearing. With what seems a proven strategy of an attractive mix of own- label and well-known brands, it has been building a strong following among the nation's shoppers.
So it is something of a puzzle why it remains at a marked discount to its peers in the sector, even after a jump in the share price to 400p, back to its original price when it was floated. Debenhams remains at about a 10 per cent discount to the sector, and on the same multiple as House of Fraser.
Another positive sign for the group is continuity of management, so often vital to the success of any enterprise. The shares are a buy.
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