Yahoo Finance Three years on from Dr Martens’ float it may be time to put a toe in the water
This column is habitually wary of flotations of companies owned by private equity firms, in the view that the latter are run by smart people and if smart people are selling then you really should think twice about buying.
But four profit warnings and a share price chart that zooms from top left to bottom right means an awful lot of bad news is in the public domain at Dr Martens and it may not take much to stoke a recovery in the shares.
Floated at 370p a share early in 2021, Dr Martens has delivered a few sharp kicks to investors since.
The maker of the iconic Airwair boots has cited several reasons for the string of sales and margin disappointments, including additional investment in IT, a crimp on consumer spending thanks to the cost of living crisis and weaker-than-expected demand in America.
That poor showing in the US has resulted in an inventory overhang, which manifested in weak cash conversion in 2023 (as stockpiles of unsold goods built up) and then a cash outflow and margin pressure in the first half of the 2024 financial year.
Management now feels that inventory at its US wholesalers is low, but there is little visibility about when order intake may start to improve. January’s third-quarter trading update showed the extent of the challenge as global wholesale sales fell by 49pc year-on-year in the period against a 5pc slide via the company’s own shops and a 9pc drop online.
For all of that, chief executive Kenny Wilson did not cut sales or earnings guidance yet again in January’s update, barring an acknowledgement that strength in sterling could be a hindrance if it persists. Better still, management is not simply sitting and waiting for trading conditions to improve.
New chief financial officer Giles Wilson arrived in November, to bring with him an understanding of the power of global brands from his time at Glenfiddich whisky distiller William Grant and his experiences as the chief number cruncher of a listed company, aviation services specialist John Menzies, before that. Dr Martens has also hired Ije Nwokorie from Apple to fill the new role of chief brand officer.
And it is in the brand that much of Dr Martens’ appeal still lies. There is growth potential aplenty in the EU and America and after the woes of the past 12 months there is scope to boost profit margins too.
The balance sheet is not unduly stretched – interest is covered more than twice by profits – while management’s decision to keep the interim dividend unchanged and buy back shares spoke of some confidence in the long-term outlook.
A multiple of barely 12 times forecast earnings, based on a pretty depressed profit forecast, may also offer some protection as well as scope for gains and even – in the event management does not restore sales and profit momentum – attract the attentions of a predator.
Private equity firm Permira, which still owns a 38pc stake, bought the company for £380m a decade ago and would still be comfortably in the black if anyone came knocking.
This could be the time to see if Dr Martens can put its best foot forward. Buy.
Questor says: buy
Ticker: DOCS
Share price at close: 95.1p
Update: Close Brothers
Well, we have certainly made a mess of this one and, with the benefit of hindsight, should have dumped Close Brothers when we took a couple of other stocks out of the portfolio two weeks ago thanks to worries over a regulatory investigation into “discretionary commission arrangements” in the car financing market.
All we can do now is sit and suffer, although there is the option of selling to generate some tax losses for those who feel the prevailing uncertainty means the stock will be dead money (at best) for a year or two.
It was no surprise that Close Brothers cut its dividend, as few stocks really deliver 10pc-plus yields, but last week’s move to cancel it was a shock, as evidenced by the latest share price slump.
That spoke of just how much uncertainty surrounds the investigation and any penalties the watchdog may impose.
But the bank’s balance sheet has enough capital to take a big hit, while the £459m market value compares with tangible net assets of £1.4bn (as of last September), so the valuation already prices in a sizeable regulatory penalty.
It is (alas) too late to cut Close Brothers. Hold.
Questor says: hold
Ticker: CBG
Share price at close: 305p
Russ Mould is investment director at AJ Bell, the stockbroker
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