Card Factory PLC (LON: CARD)  

Card Factory PLC (LON: CARD) is an FTSE All-Share index listed retailing Company, which deals in gift dressings, gifts and greeting cards. The company operates two retail websites and has mobile apps for both iPhone and Android.

Growth Prospects (covers trading update released on 08 November 2021)

• Strong Trading Anticipated for Christmas: The Company aimed to gain trading momentum before Christmas 2021 with the introduction of the third phase of Christmas cards and complementary products into approximately 350 stores.
• Robust Online Trading Momentum: CARD had shown accelerated progress related to online trading with the stronger performance of Getting Personal offsetting a reduction in sales from cardfactory.co.uk during Q3 FY22. Moreover, both brands performed better than the pre-pandemic levels.
• Bright Industry Prospects: Early Christmas shopping, high footfalls for movies, and increased overseas travel had boosted the UK retail sales in October 2021.

Key Risks

• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Expected Federal Reserve Tapering: The expected Federal tapering at the pace of USD 15 billion per month starting later this month may adversely impact the equity markets. Moreover, the Bank of England decided to keep interest rates unchanged in its latest meeting.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Card Factory PLC.

Teleios Capital Partners GmbH is the most significant shareholder as it holds nearly 68.40 million shares as of 30 September 2021. 

H1 FY22 Financial & Operational Highlights (for six months ended 31 July 2021, as of 28 September 2021)

(Source: Company result)

• Robust Top-Line Business: The top-line revenue increased by around 16.30% from £100.5 million during H1 FY21 to £116.9 million for H1 FY22 despite over ten weeks of store closures across the UK and Republic of Ireland.
• Strong Operating Cash Flow: The Company had produced a strong operating cash flow of £36.1 million during H1 FY22, benefited from improved trading performance and favourable working capital movements.
• Reduction in Net Debt: CARD had strengthened the balance sheet by showing a decline in the net debt from £107.7 million at the end of FY21 to £96.4 million as of 31 July 2021.
  

Financial Ratios (H1 FY22)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 18 November 2021, at 08:37 AM GMT, CARD’s shares were trading at GBX 54.16, down by around 0.99% from the previous day closing price. Stock 52-week High and Low were GBX 97.83 and GBX 30.50, respectively.

From a technical perspective, the MACD line remained above the signal line, reflecting an upside momentum in the stock price. Moreover, the stock price is hovering above the 20-days exponential moving average of GBX 52.61, indicating an upside potential in the stock price.

On a YTD basis, CARD’s stock price had delivered a positive return of around 27.95%, while the FTSE All-Share index (benchmark index) had produced a return of about 13.37%, and the FTSE All-Share Retailers index (benchmark sector) had generated a return of approximately 25.20%. 

Valuation Methodology: Price/Sales Approach (NTM) (Illustrative)

Business Outlook

The Company’s average basket value had breached pre-pandemic levels during Q3 FY22 and neutralized the adverse impact of lower transaction volumes. Moreover, the Company is putting investments towards the development of omnichannel offerings. The Company had managed to provide long-term guidance as it anticipated revenues of more than £600 million for FY26, with around 20% coming from online & multi-channel and retail partnerships. On the profitability front, CARD anticipates the PBT margin to remain approximately 17% over the longer term, driven by the favourable shift in product and channel mix.

Considering the speculative nature of the stock, CARD may undergo sizeable corrections because of the UK inflation reaching a 10-years high during October 2021, lower-than-expected UK GDP growth during Q3 FY21, and Federal Reserve Tapering by the end of November 2021. Thus, it may depend on the risk appetite of the investors to take a reasonable position in this company having bright prospects during the festive Christmas period.

Considering the strong revenue guidance for FY26, improvement in net debt, favourable festive period, decent top-line business, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Card Factory PLC at the current market price of GBX 54.16 (as on 18 November 2021 at 08:37 AM GMT), with lower-double digit upside potential based on 0.63x Price/NTM Sales per share (approx.) on FY22E sales per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.