Card Factory PLC – Could be well-placed to recover from volatility after appointing a new CEO.

Card Factory PLC (LON: CARD) is a FTSE All-Share listed retailing Company, which deals in gift dressings, gifts and greeting cards.

Investment Rationale – Hold at GBX 39.56

• The new CEO has excellent credentials and experience to lead Card Factory through the next phase of evolution.
• As per valuation metrics, Price/Earnings, EV/Sales and EV/EBITDA multiples of the CARD are currently lower as compared to the corresponding multiples of the Speciality Retailers industry.
• On the liquidity front, the current ratio was 0.97x in H1 FY21, which is slightly higher than the industry median.
• From the technical standpoint, 14-day RSI stood at 29.94, which is supporting the upside movement.
• H1 FY21 results demonstrated strong online performance, and Board appeared confident in the long-term stability of the card market.

Risk Assessments

• The recent upsurge in Covid-19 cases could result in the shutdown of the stores and might hamper the supply chain of the group.
• The Company is facing a significant financial impact due to stores closure with coronavirus led restriction.
• During H1 FY21, the Company turned into losses, and it can face significant liquidity risk.

Recent News

21 December 2020: Card Factory has appointed Darcy Willson-Rymer as Chief Executive Officer (CEO). He will join the organization on 8 March 2021.

Financial Highlights (for the six months ended 31 July 2020, as on 29 September 2020)

(Source: Company Website)

• The first-half results were in line with previous anticipations, reflecting an increase in the online business of 64.4% (like-for-like revenue). The growth was driven by the positive response from the website relaunch on 2 July 2020 and the increased demand during the period of store closures.
• The Company witnessed a better partnership sales performance than expected, with a sale of £1.9 million.
• CARD reported an operating cash flow of £25.2 million in H1 FY21, £8.9 million lower than the corresponding period of the last year (H1 FY20: £34.1 million).
• All major spring seasons were adversely affected by COVID-19.
• In H1 FY20, the net debt was down, due to cash conservation measures.
• The Company’s store network reduced by seven stores.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

Card Factory has hired a new CEO and he is looking forward to unlocking the true potential of the business by delivering its transformation strategy in the UK and internationally. The Company is well prepared for Christmas 2020 season, with complementary product availability, Christmas cards to stores and multi-channel fulfilment capacity (which shall maximise in store and online sales). The Board has shown good trading movement since stores have reopened and witnessed encouraging start to the second half of the year. Overall, it has taken significant actions to strengthen financial liquidity and remained highly cash generative. The stock made a 52-week low and high of GBX 22.00 and GBX 166.14, respectively.

Based on the above-mentioned factors and valuation methodology, we have given a “Hold” recommendation on Card Factory PLC at the current market price of GBX 39.56 (as on 22 December 2020, before the market close at 8.05 AM GMT), while we look forward to reviewing the upcoming catalysts.

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

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