RBC upgrades Debenhams, cites undemanding valuation

RBC Capital Markets upgraded Debenhams to ‘outperform’ from ‘sector perform’, with a 100p price target.

It said the share price is factoring in no growth, but the bank expects it to report is first full-year pre-tax profit growth in four years on 2 October. It also expects the company to make further progress in the year ahead.

It noted that the valuation is undemanding, with Debenhams trading at a price-to-earnings discount to the sector of around 40% and offers a free cash flow yield of around 11% and a 4.5% dividend yield.

“Debenhams remains strongly cash generative which is allowing it to de-lever and should enable it to boost shareholder returns in time,” said the Canadian bank.

RBC said Debenhams is improving its offer, utilising surplus space better and has a better online proposition and inventory control.

“Debenhams has a mixed track record and faces some challenges as a fairly mature department store chain but remains a very well-known brand and cash generative business.”

At 1257 BST, Debenhams shares were down 1.1% at 74.85p.