19th Jul 2016 12:11
LONDON (Alliance News) - Card Factory's low-price point, high margins and strong cash generation should make the cards and gifts retailer a good defensive investment in a weaker post-Brexit demand environment in the UK, Investec said.
Investec analyst Kate Calvert said Card Factory operates a "highly attractive vertically integrated business model", underpinned by industry leading margins, surplus cash generation, an advantageous lease structure and low capital expenditure requirements.
Due to US dollar sourcing costs, which have been increased by the depreciation of sterling, and lower like-for-like sales growth likely from sapped consumer confidence, Investec did cut its pretax profit estimates for Card Factory's 2017 and 2018 financial years, each to the end of January.
This results in Investec's price target falling to 395 pence from 410p previously. Card Factory shares were down 0.3% to 300.2p Tuesday.
But with the stock trading at an "undemanding" 15.2 times calendar year 2017 earnings estimates, given its cash generation record and 7.8% combined dividend yield, including ordinary and special payouts, Investec kept its Buy rating on the shares intact.
By Sam Unsted; [email protected]; @SamUAtAlliance
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