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Carpetright Surges as Losses Narrow

Flooring firm getting back on track after painful restructuring but experts warn some of the company's problems are "out of its hands".

James Gard 25 June, 2019 | 10:46AM

Carpetright

Carpetright (CPR) shares surged almost 12% as investors bought in to the struggling company’s turnaround story after an encouraging set of full-year results.

Shares in the troubled retailer plunged 89% last year after a series of profit warnings and widening financial losses. The firm entered a company voluntary arrangement (CVA) in 2018, which allowed it to continue trading while it paid off its creditors. CVAs are currently in vogue among retailers – companies such as Mothercare, Homebase and most recently Sir Philip Green’s Arcadia have taken the option of store closures and job losses as an alternative to bankruptcy.

The latest set of full year results mark an important turaround for the firm, which is benefiting from the trend among homeowners to "improve not move" as the outlook for the property market remains uncertain.

Shares climbed to almost 20p as the firm reported an 8.5% rise in like-for-like sales in teh first two months of the current financial years. AJ Bell investment director Ross Mould says the results show that Carpetright is moving in the right direction. Full-year losses narrowed from £69.8 million to £24. 8 million, while net debt has been reduced from £53 million to £27.4 million.

Chief executive Wilf Walsh described the last financial year as a difficult one against the backdrop of a tough retail environment: “Our work is far from finished, and while economic and political uncertainties cloud the near term outlook for the retail sector, our turnaround plan is very much on track."

While the company’s market cap is small at just under £60 million, the household name chain is seen as something of a bellwether for both the sector and the housing market, both areas of concern for UK investors. Mould warns that “some of Carpetright’s problems are out of its hands” as the subdued property market reduces demand for new carpets, flooring and beds. He is also concerned that Carpetright’s website is full of promotions, which “creates a culture of discounting that customers will expect to be permanent”.

Carpetright is held by a number of UK active funds, especially those focused on smaller companies and special situations. The Silver-rated Investec UK Special Situations fund holds a small stake in Carpetright, as does Investec UK Total Return. The special situations fund has been run by Alasdair Mundy since 2002. Morningstar analyst Samuel Meakin says: "Mundy and the team use a well-established contrarian process that seeks to invest in companies whose share prices have seen significant falls relative to the market."

Among closed-end funds, Bronze-rated Aberforth Smaller Companies Trust (ASL) is also an investor and the sixth largest owner of Carpetright among UK listed funds. 

Carpetright was founded by Lord Harris of Peckham in 1988. He announced his retirement as chairman in 2014 after 26 years with the business, only to return to the business as the company struggled. He now longer has any shares in the company he founded.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Aberforth Smaller Companies Ord1,346.00 GBX0.75
Carpetright PLC9.22 GBX0.00
Investec UK Special Situations I Acc216.58 GBP0.14
Investec UK Total Return R Acc139.76 GBP0.19

About Author

James Gard  is content editor for Morningstar.co.uk

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