Shares - - TALKING POINT -

Moss Bros (MOSB) 92.6p A down­wards drift from 120p in the sum­mer to 92.6p presents a buying op­por­tu­nity at Moss Bros. The re­tailer’s strong bal­ance sheet and high div­i­dend yield pro­vide a mar­gin of safety and should limit fur­ther down­side.

Based on the 6.2p div­i­dend fore­cast by Can­tor Fitzger­ald for the fi­nan­cial year to Jan­uary 2018, Moss Bros’ plump 6.7% div­i­dend yield (as well as re­cent share price weak­ness) in­di­cates the mar­ket is wor­ried about fur­ther earn­ings down­grades.

We be­lieve the pro­gres­sive pay­out will be se­cure given it has a £21.5m net cash po­si­tion. That cash pile is ap­prox­i­mately one fifth of its mar­ket value.

Head­winds fac­ing the self­styled ‘first choice for men’s tai­lor­ing’ in­clude com­pe­ti­tion, ris­ing labour and cur­rency costs and the squeeze on con­sumer in­comes.

This year’s hire sales were hit by the later tim­ing of Easter, which tra­di­tion­ally sig­nals the start of the wed­ding sea­son, and a trend to­wards lounge suits rather than tra­di­tional morn­ing dress.

More grooms are choos­ing to buy rather than hire their wed­ding suits, which is at least ben­e­fi­cial for Moss Bros’ re­tail busi­ness and Tailor Me per­son­al­i­sa­tion ser­vice.

Nev­er­the­less, Moss Bros’ half year re­sults (28 Sep) were strong with pre-tax profit up by 16% to £4.2m.

Re­tail like-for-like sales grew 5.1% thanks to in­vest­ment in staffing, stores and prod­uct ranges and this pos­i­tive mo­men­tum car­ried over into the open­ing eight weeks of the sec­ond half pe­riod.

En­cour­ag­ingly, Moss Bros is mak­ing progress with nu­mer­ous on­line and store ini­tia­tives, while on­line ex­pan­sion of­fers an ex­cit­ing over­seas growth op­por­tu­nity.

‘De­spite the short-term head­winds, we con­tinue to see scope for prof­its to dou­ble from the cur­rent base over the medium term’, writes Can­tor Fitzger­ald, a buyer whose 130p price tar­get sug­gests 40% po­ten­tial up­side.

For the cur­rent year, the bro­ker fore­casts pre-tax profit im­prove­ment from £6.9m to £7.2m for earn­ings of 5.6p per share, ahead of £7.3m and 5.7p re­spec­tively in 2019.

Moss Bros trades on a mere 5.1 times EV/EBITDA (en­ter­prise value to earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion) which is too cheap, in our view. It cur­rently boasts 18.4% re­turn on cap­i­tal em­ployed, ac­cord­ing to Stock­o­pe­dia, which is a very healthy fig­ure. (JC)

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