Shares are down from recent highs at HSBC Holdings (LSE: HSBA), Royal Dutch Shell (LSE: RDSB) and N Brown Group (LSE: BWNG) but the investment story remains compelling in each case. Are we seeing a good-value entry point for these shares right now?
A growing market
Plus-size clothing purveyor N Brown Group has several attractions. For example, the niche market of selling plus-size clothing, discretely, strikes me as likely to be buoyant and growing in today’s world. Then there’s the ongoing progress N Brown is making migrating sales from a catalogue-/post-based model to internet-driven revenue — around 63% of the company’s turnover arrives via the medium of the internet, and growing.
That story sounds compelling, and the shares enjoyed an upwards re-rating between early 2012 and early 2014 as the price-to-earnings (P/E) rating increased. However, despite revenues following a steady upwards slope for the last five years, earnings have been volatile, causing the shares to slide by just over 50% during 2014, touching 287p or so by October that year. Poor seasonal sales and ongoing re-structuring are to blame for the firm’s lacklustre performance on profits, but I’m heartened by the steady progress on sales.
Shaking things up
N Brown is changing its business model, and progress with sales shows that the new way of doing business is working. However, shaking things up to accommodate change, and clearing away inefficient parts of business operations can generate exceptional costs, such as those recently incurred when the firm closed some clearance stores. One-off costs can muddy the waters for investors, and poor sales in a season due to weather effects don’t help clarity either.
Since early September, the shares have recovered by more than 30%, which suggests that N Brown’s longer-term attractions are once again shining through. Indeed, City analysts following the firm expect earnings to recover by 20% year to Feb 2016 and by a further 10% the year after that. The share-price reversal is encouraging, and I’m tempted to buy any retrace now, bearing in mind the solid progress the company continues to make with revenue-generation.
Today’s 383p share price has the shares changing hands on a P/E multiple of just over 14 for the year to Feb 17, and there’s a nice forward dividend yield of 3.9% with the payout covered 1.8 times by forward earnings.
What about the big firms?
Is FTSE 250 firm N Brown Group more attractive than bigger firms that have also seen there shares weaken during recent months and years, such as banking and financial operator HSBC Holdings and oil company Royal Dutch Shell? To me it is, even though HSBC’s forward P/E rating of 10 and Royal Dutch Shell’s of 13 seem lower than N Brown’s rating.
All three of these firms have cyclicality in their business operations, but I’d argue that Shell’s fortunes are out of its own control as commodity prices fluctuate according to the dynamics of world economies, and supply and demand. HSBC is what I’d describe as a commodity-style business, because the firm’s banking and financial products are similar to those from other providers, and because the bank’s performance depends a great deal on what the economy is doing.
N Brown, though, provides a service with an element of repeat custom. Clothes wear out regardless of the depth of a recession, so even though business might wax and wane with the economy, the movement could be less extreme than the famine-and-feast dynamics faced by bankers and miners. N Brown’s ongoing re-invention as an internet operator combines with this insulation from the more severe effects of cyclicality to make the firm the most attractive. If any of these firms currently shows us a golden opportunity as an investment, it’s N Brown Group to my eyes.