Laura Ashley (ALY)

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8th Nov '16 by redrum

10 comments 5567 reads

Just wondering if Paul has any further thoughts on the continuing drift in the share price here.
If the 2p full year dividend is held it's now yielding over 10%.
Too good to be true or is the market getting this one all wrong?

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Redrum

Premium Member

10 comments

Boon

22nd Nov '16

2p dividend is not covered by expected earnings.
Earnings have been downgraded so far this year by analysts.
Further pressure in UK retail to be expected over the next year due to weaker sterling.
AU business will take time to ramp up again.
South-east asian expansion not proven yet.
Business now in net debt due to office freehold purchase in Singapore.

This is my view, I think there will be better entry points into Laura Ashley in the coming weeks/months after the next trading updates. It is a brand with strong heritage, so I'm always aware that a takeover can be on the cards, either by the large Malaysian shareholders or a third party.

Tortoise investor

23rd Nov '16

My main issue with Laura Ashley Holdings (LON:ALY) is where the growth will come from. It's been talking about international growth potential for yonks and it never materialises - just look at past annual reports. I see it as a value trap.

redrum

23rd Nov '16

I will keep it on my watch list for now along with Talk Talk.
I like to buy when everyone else is selling, risky but where there is risk there is also reward.

Beginner

17th Feb '17

Do you think this might be a decent entry point? PER = 9, Yield (though cut) = c8%, debt is offset by property holdings, on line sales showing some improvement, and the persistence of a fairly resilient franchise model abroad lessens risk. Unsurprisingly the house broker gives it a 'buy'.

The results yesterday effectively gave a 4% drop across the board, and the negative retail news today has led to another fall in price. We are more or less at an annual low. I agree with you that we have a valuable brand here, and the real possibility of it going private.

(Or is it worth saving some cash for when President Pence is inaugurated in a few months?)

imranawan

17th Feb '17

According to my calcs the dividend is around 5.8% at the current level, and it look a value trap to me.

Howard Marx

17th Feb '17

"where there is risk there is also reward"

Not strictly true : if risky stocks always delivered rewards they wouldn't be risky!

redrum

17th Feb '17

Very true, they can make things exciting at times though. All depends on your personal investment syle, future aims, timescales etc. I'm keeping ALY on my watchlist for now.

lightningtiger

17th Feb '17

From the interim report and qualifying the dividend payment of 0.5p per share with an XD date 23/2/17 paid on 17/3/17 makes the dividend worth 2.94% at a purchase price today of 17p. (0.5p/17p = 2.94%.

If the assumption that the total dividends for 2017 will be 2p in total, which there is no guarantees, then the total would be 2p/17p =11.76% (assuming 2p dividend was going XD & you bought today.

The fact is that it is only paying 0.5p if you buy before the XD date.

The share price is still dropping and has not stopped yet.If it dropped to 5p then the same 0.5p dividend would be worth 10% (0.5p/5p)

Until such time as either a takeover bid or the share price reverses,the entry point has not arrived yet.

Boon

18th Feb '17

I did have a look yesterday after the update, but have held off on purchasing for now. For several main reasons:

1) It looks like weakness set to continue in UK operations. And this could be disastrous - lots of fixed-cost self-run stores, rather than franchises. I haven't heard enough from Laura Ashley what they're going to do to turn around UK operations, and for me there is a big risk that this division is going to drag down overall group profitability in the coming quarters

2) Asia/Australia franchise growth and profitability not yet confirmed. The company is making the right noises about "prospects" in the region, but there's no hard figures shown and so I'm not investing until there is a clear growth story there. Sure, India and China sound like huge untapped opportunities, but do we really know if the brand will be successful in those markets yet? Also it strikes me that they've already had a presence for some years in Asia with Singapore-based staff. The majority shareholder is Malaysian. Why hasn't there been more progress in Asia sales already?

For me this story sort-of mirrors the Mothercare story in the last few years. Challenging UK sales. Strategy of relying more on Asia franchises. Only in the case of Mothercare, they had a cash-cow, proven brand strength in Asia to offset the huge losses in the UK. I don't think I can assume the same about Laura Ashley yet.

FYI on Singapore property - I believe they have been dropping for some time now, even office properties. Looks like Laura Ashley might have bought at the height of the market. If there's a decline in value, this might put pressure on some of the debt covenants: http://www.cnbc.com/2017/01/26/why-the-investment-outlook-for-singapore-property-markets-may-be-grim.html

Beginner

18th Feb '17

Thanks to all here. Some well informed and enlightening comments. The Mothercare (LON:MTC) comparison seems very valid. Overall it seems best to watch and wait.

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Laura Ashley (ALY)

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Redrum

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