Update: Card Factory
Rather like Saga, greetings card and gift wrap maker Card Factory is having to redeem itself after a trading alert and, rather as with Saga, last week’s full-year figures offered grounds for optimism especially as – again, just like Saga – the firm provided reassurance on its dividend.
Profits lived down to low expectations, sliding by 11pc even as revenues rose by 6pc, mainly thanks to higher costs from the minimum wage and the pound’s slide, which inflated purchasing bills.
But that was no worse than expected and the chief executive, Karen Hubbard, and her team nudged the full-year regular dividend up to 9.3p from 9.1p.
That in itself represents a tidy 3.8pc yield. But the boss also hinted at plans to pay another special dividend in 2019.
While it will not reach the 15p a share of the past three years, Card Factory is targeting a 5p to 10p payment. In this column’s view 5p looks eminently affordable from free cash flow, assuming no marked deterioration in daily trading (and the pound’s rally should now start to help with buying costs). Operating profit of £76m plus the £11m non-cash items of depreciation and amortisation come to £87m. Take off £17m for tax, £11m for capital investment and £3m for interest and that leaves £56m.
The ordinary dividend costs around £32m so that leaves £24m, enough for a 7p special (with 341 million shares in issue).
Even paying 5p, to leave some margin for error and to remove any need to add debt to fund a special distribution, would take the total dividend to 14.3p, enough for a 6pc yield on the current share price.
That yield, while tempting, does also remind investors that risks still lurk, in the form of weak consumer confidence, the possible impact of any fresh weakness in the pound and concerns over whether cards will simply be replaced by other forms of (electronic) communication.
Earnings are likely to be flat this year, after all, although record footfall in 2018 may ease investors’ worries about any long-term, structural drops in demand.
Dangers still abound but a price-toearnings ratio of barely 10 and the fat yield go some way to reflecting the risks that patient income seekers are taking on.
Questor says: hold
Share price at close: 245.8p