How shareholders are keeping faith in Carpetright

Kasmira Jefford
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Source: David Wright

Poor old Carpetright was in a frayed state last week when a third profit warning by the group in six months sent shares down five per cent from 586p to 556.5p.

The retailer, which is in the hands of its chairman and founder Lord Harris, after chief executive Darren Shapland quit last year, bemoaned that the recovery in the housing market has yet to reach its tills and lead to more people refurbishing their homes.

But as retail analyst Nick Bubb points out this morning, Carpetright’s share price is now, at 600p, higher than it was before last week’s latest profit warning, thanks to the good faith of the retailer’s long-term shareholders who are holding out in hope of a recovery.

The latest fund to show its support is Phoenix Asset Management, which announced last week it has topped up its holding and moved to over a three per cent stake.

Bubb says:

Given the scarily high rating of the highly illiquid but highly operationally geared Carpetright, we are tempted to say that we are not sure what planet Phoenix are living on….

In the year to April, Carpetright will do nearly £450m in sales, but it will make only about a one per cent pre-tax profit margin on that, so the £400m market capitalisation leans very heavily on the hope that it can, at the very least, soon return to the £28m profit before tax it made back in 2009/10.

The prospect of returning to 2009/10 levels, however, seems very far off.

Carpetright said last week that it now expected underlying pre-tax profit for the year to 26 April to be between £3.5m and £5.5m, compared with analysts’ already lowered forecasts of £7m to £8m.