Cautious response to N Brown trading

Retailer N Brown (LON: BWNG) traded slightly better than expected in the third quarter with strong gift and home sales. Costs savings, including lower marketing spend, have partly offset lower profit contribution due to a reduction in revenues. Even so, investors still need to be persuaded that the recovery will accelerate.

N Brown has an older customer base above 50 years old, and they are not buying as much clothing. There was growth in leisurewear and nightwear.

Product revenues were 9% lower year-on-year in the third quarter. That compares with 12% in the previous quarter and 28.8% in the first quarter. The customer debtor book arrears were 7%. Overall revenues were 8.8% down in the third quarter.

Third quarter sales by the five main brands – JD Williams, Jacamo, Simply Be, Ambrose Wilson and Home Essentials – were 1.4% lower. Most of those brands added to their online customer account levels.

AIM

Manchester-based N Brown made the move from the Main Market to AIM as a condition of Lord Alliance’s investment in a £100m placing and open offer at 57p a share. The ease of completing corporate transactions and tax advantages were also attractions of AIM. Lord Alliance and related parties own 52% of N Brown.

That cash will be used to pay off unsecured debt and invest in the financial services platform and retail websites. Reported net debt will be around £300m at the end of February. This is predominantly secured against trade debtors and the facility lasts until the end of 2023. There is no unsecured debt. The current share price is around one-fifth of the level three years ago.

There was a negative reaction to the trading statement and the share price fell to 63.5p. Even based on a pre-tax profit decline to £33.9m, the shares are trading on seven times prospective earnings.

Pre-tax profit could bounce back to £45.7m, although that is still lower than the level in 2019-20 and earnings per share are diluted by the large share issue.

The recovery will take time, but the balance sheet is stronger and there are some strong brands. The current rating provides plenty of upside if the recovery goes to plan.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.