EXTRA: Debenhams Secures Funding Lifeline But Analysts Remain Cautious

LONDON (Alliance News) - Shares in Debenhams PLC surged on Tuesday after the troubled department ...

Alliance News 12 February, 2019 | 1:09PM
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LONDON (Alliance News) - Shares in Debenhams PLC surged on Tuesday after the troubled department store chain secured an extension of the terms on some of its debt, but analysts think its long-term prospects still hang in the balance.

Debenhams shares were up 35% at 4.23 pence on Tuesday. However, the stock is down 86% over the past 12 months, having traded around the 30p mark this time a year ago.

"The jump in the share price on the back of this deal is substantial, however it still sits significantly lower than where it started 2019. Debenhams is now a small stock with a high level of short sellers, and that means we can expect the share price to be extremely volatile, reacting sharply to both positive and negative news," said Hargreaves Lansdown analyst Laith Khalaf.

Debenhams on Tuesday said it has secured an extension to its credit facilities and inked a sourcing partnership with Li & Fung, a Hong Kong-based supply chain manager primarily for US and EU retail chains.

The struggling department store chain has agreed a new GBP40 million credit facility for 12 months with its existing lenders, it said. The new loan fully utilises permissions within the terms of the company's current revolving credit facility and loan notes.

The retailer said the new loan facility will act as a bridge to facilitate a broader refinancing and recapitalisation, and the company is continuing to engage constructively to conclude a comprehensive refinancing.

"While the agreement is good news the last trading update in January showed a sharp drop in sales. Measures are now being taken to address the situation but the company is facing the same existential questions as many others on the high street with the growing challenge of online retailing," said Share Centre analyst Graham Spooner.

Last month, Debenhams said like-for-like sales for the six weeks to January 5 fell 3.4%. In the UK, like-for-like sales declined 3.6%, and Debenhams said digital growth offset "weak" footfall in its stores. In the period, gross transaction value fell 3.8%.

For the six week period, group digital sales were up 6.0% against a "strong" comparative.

In the wake of the weak trading performance, two major shareholders voted against the re-election of Chair Ian Cheshire and Chief Executive Sergio Bucher to the company's board at its annual general meeting in January.

The cash injection announcement ends months of uncertainty over the the department store's finances, which led to Sports Direct International PLC boss and Debenhams shareholder Mike Ashley reportedly saying the firm had little chance of survival.

The Telegraph reported in January that Ashley described himself as "extremely frustrated" in an email to Debenhams management after the department store rejected a loan offer from Sports Direct, and said that "without something changing rapidly all of the shareholders risk getting wiped out, never mind diluted".

Debenhams is also working with advisers at KPMG on restructuring options thought to include a company voluntary arrangement, though plans have been kept tightly under wraps.

"Debenhams' longer term prospects are still in the balance, and recent [macroeconomic] data showing a deterioration in the UK economy isn't exactly going to help matters. For now, Debenhams has kicked the can down the road, but will have to come back for some tough negotiations with quite a lot of internal dissent amongst its stakeholders. Sounds eerily familiar," Khalaf added.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Rating
Debenhams PLC 3.28 GBX -2.13 -
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