Up­date: Card Fac­tory

The Daily Telegraph - Business - - Business - Russ Mould is in­vest­ment di­rec­tor at AJ Bell, the stock­bro­ker

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

Ticker: CARD

Share price at close: 245.8p

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