Transformation
Shares in N Brown Group (LSE: BWNG) have lost 65% of their value since their peak in February 2014, and a look at the firm’s declining earnings per share since 2012 makes that look like a reasonable market reaction — or does it?
While EPS has fallen by 17% over that time, the much bigger share price fall has dropped the P/E to only around nine, and forecasts suggest the earnings fall is bottoming out. So what’s behind it all?
N Brown is a home shopping retailer, operating a number of brands including JD Williams, Jacamo and Simply Be — essentially catalogue shopping, and targeted mainly at women aged 30 and above. Catalogue shopping is declining in popularity as folk switch more to the internet to buy their fashionable rags — why settle for one photo in a heavy (and quickly out of date) paper book when you can see multiple views together with video footage?
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But the company is increasingly moving towards online retailing too. It’s just been a bit tardy doing so, but it clearly already has the warehousing and distribution systems in place.
Results for 2016 are due on 27 April, and N Brown’s January trading statement looked good to me, showing a 4.1% rise in third-quarter revenue, with 77% of new customer demand generated online. Chief executive Angela Spindler told us that “All key brands and categories grew in the period“, after some had declined in the first half.
The dividend has been maintained through the tough patch, and forecasts suggest a steady yield of around 6.7%. Even being pessimistic, that leaves room for a cut while still providing a good payout.
At today’s 209p share price, I’m seeing a bargain.
Blue sky
My second choice, PureTech Health (LSE: PRTC), is a very different prospect, and it’s not for those who don’t like a bit of risk. In short, it’s a biopharmaceutical research firm that is not making any profits yet, and is not expected to do so in the next couple of years. So we can forget all the usual fundamental measures like earnings, dividends and ratios, as they’re all negative, zero or “n/a”.
But the company has just announced a licensing and equity agreement with US giant Novartis, “to initially focus on aging-related disorders“. And a Phase 2b clinical study of something that sounds very clever to me is expected to start in 2017 — it will target “diseases related to immunosenescence, an age-related decline in immune function“, they say.
We’ve also seen a steady stream of positive results from various other trials coming through in recent months, in cooperation with a number of other pharmaceuticals firms including Pfizer. In fact, at the interim stage, PureTech spoke of a pipeline of more than 20 clinical studies in progress.
And although the company recorded an adjusted loss of $26.92m, it was sitting on consolidated cash reserves of $297.4m. During the first half of 2016, the group raised $83m, with $50m coming from Vedanta Biosciences and a further $30 million from Akili — so there appears to be plenty of serious outside interest here.
Full-year results should be with us on 6 April, and the financials are likely to take a back seat to news on pipeline progress. At this stage, I’m really starting to think PureTech is looking like an attractive, if very uncertain, investment.
