logo-loader

ScS Group sitting pretty despite House of Fraser disruption

Last updated: 10:45 02 Oct 2018 BST, First published: 08:17 02 Oct 2018 BST

Sofas
The year just gone saw a decrease in sales from the House of Fraser concession of 9.4%

Sofas seller ScS Group PLC (LON:SCS) has got off to a good start to its new financial year with like-for-like sales up 2.1%.

The shares were up sharply in early trading after the company published its results for the year to the end of July, which showed a 1.3% increase in revenue to £337.3mln from £333.0mln the year before.

READ: ScS sees order intake decline in second half as it gets burned by scorching summer

Underlying earnings, or EBITDA, rose 8.1% to £18.8mln from £17.4mln the year before while profit before tax jumped 10.5% to £13.2mln from £12.0mln.

Unlike many retailers, it did not grumble about the weather but it did have a justifiable comment about the impact of the changes at department store group, House of Fraser.

Trading within its House of Fraser concessions, which represented 7.1% of gross sales in the fiscal year just ended, “remains challenging and we are working with the new owners to address this as a priority”.

Performance in the core ScS business has been encouraging, however, with the growth in sales more than offsetting the decline in sales from the House of Fraser outlets.

“2018 has been another strong year. Despite a prolonged period of economic uncertainty and challenging trading conditions, we have continued to grow the business. I believe this is due to our continued focus on what we do best - ensuring that we offer an excellent customer experience with outstanding value, quality and choice,” said David Knight, the chief executive officer of ScS.

“We will continue to focus on our value offering and we believe the group's increasing resilience and strong cash flow dynamics will enable us to manage the continued economic uncertainty and take advantage of opportunities as they arise, allowing us to continue to deliver value for our shareholders," he added.

The full-year dividend has been increased by 10.2% to 16.2p.

READ: ScS delivers first-half sales growth but warns on 'challenging' retail market

Nick Bubb, the independent retail analyst, said today’s finals maintain the trend from the “surprisingly resilient” trading performance in the summer.

“ScS say bravely that ‘we are working with the new owners to address this as a priority’ (good luck with that). Overall, however, ‘Group trading since the start of the year has been pleasing and in line with the board's expectations’,” Bubb noted.

Industry as a whole seems to be bouncing back a little

House broker, Shore Capital, deemed it an “excellent” set of results against a far from easy backdrop.

“ScS is trading its estate very well, all credit to CEO David Knight and his team, whilst the financial constitution goes from strength-to-strength with net cash at the year excluding company deposits amounting to £36m (c45% of group market capitalisation),” the broker said.

“The core store business is offsetting the performance within the House of Fraser concessions, which is unsurprisingly a challenge, but is being addressed. With recent trading looking solid, we believe that this lowly rated stock is mis-priced,” Shore said.

The broker does not have ratings on stocks where it is the house broker but you do not need to read between the lines to catch its drift when it says the company’s performance (historic and current), strong balance sheet and prospects, merit a fundamental re-rating.

Peel Hunt said the results “are a beat” while current trading is also ahead of expectations.

“The industry as a whole seems to be bouncing back a little from the travails of the summer and SCS is taking full advantage, so we are upgrading our numbers, which is highly unusual in the retail sector, let alone the big ticket world,” Peel Hunt said.

“The valuation of the shares was surely not expecting such a good performance: the PE [price/earnings] equals the yield at 8, and that is surely too low a multiple to persist,” Peel Hunt said.

Peel Hunt said the shares are a ‘buy’, all the way up to at least 250p.

The shares currently trade at 211p, down from their high of the day of 218p but 12p above last night’s close.

--- Adds broker comments and updates share price ---

Chesnara reports strong 2023 results with improved cash generation and...

Chesnara PLC (LSE:CSN) chief executive Steve Murray discusses the company's full-year results for 2023 with Proactive's Stephen Gunnion, describing them as strong and particularly highlighting £53 million in commercial cash generation and a dividend coverage of around 150%. The company has...

1 hour, 58 minutes ago