I have to apologise that I got it wrong when, this time last month, I featured the UK's leading specialist retailer of greeting cards, gifts and celebration essentials, ahead of its Interim Results for the six months to end-July.
I was far too early, especially as the market was being flooded with a major investor unloading his position.
However, I have not changed my opinion about the group and its prospects.
The results declared a near 6% jump in half-way sales to £233.8m (£220.8m) but with 34% lower adjusted pre-tax profits at £14.5m (£22.1m), easing earnings by 38% to 3.1p (5.6p), but actually paying a 1.2p dividend per share.
At that time CEO Darcy Willson-Rymer stated that:
"I am delighted to be reporting further progress against our growth strategy with this resilient underlying performance in the first half of the year.
We continue to deliver against our strategic priorities at pace thanks to the commitment and dedication of our colleagues.
During the period, we continued to see strong performance across our growing store estate, with gifts and celebration essentials now a core driver of revenue growth, building on our strength in greetings cards.
Together with the exciting partnership initiatives we are announcing today, we are helping more customers in more places celebrate life's moments.
As we move into the second half of the year and the important Christmas trading period, our expectations for the full year are unchanged and we continue to focus on managing inflationary pressures within the business.
Our strategic growth ambitions are underpinned by a robust balance sheet and strong cash flow, alongside our disciplined approach to managing working capital and focus on driving efficiencies and productivity across the business.
Moving forward, we believe we are well placed with a strong proposition that resonates with a broad customer base and delivers an unrivalled quality, value and choice offering."
Analysts Russell Pointon and Milo Bussell at Edison Investment Research commented that the group’s Interim revenue growth demonstrated it is delivering well against its multi-year growth strategy.
They note that while profitability was negatively affected by the (mostly) known inflation in operating costs, management is confident Card Factory will achieve its full-year estimates.
The analysts suggest that this is due to the momentum in the business and the mismatch in H125 between cost inflation and the efficiency and cost savings that have always been expected to come through in H225.
Their estimates for the current year to end January 2025 are for revenues of £545.8m (£510.9m), with profits of £67.1m (£64.2m), lifting earnings to 14.4p (13.9p) and hoisting its dividend to 4.8p (4.5p) per share.
The analyst’s figure that the coming year to end-January 2026 will show sales of £588.9m, with £74.2m profits, 15.9p earnings and paying a 5.9p dividend.
The research house reckons that the group’s shares trade at an unwarranted discount to its peers despite its higher expected revenue growth and profitability.
The discounted cash flow-based valuation increased to 200p a share, from 180p previously.
I take the view that the group’s shares, which hit 143p in late September but are now just 95.30p, are an absolute cracker of a medium-term purchase and I stand confident that my latest Target Price of 160p will be achieved – which therefore offers significant upside.
(Profile 05.08.20 @ 42p set a Target Price of 60p*)
(Profile 19.09.24 @ 130p set a Target Price of 160p)
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