Stock Pitch - N Brown Group (LON:BWNG)

8th Feb '21 by Ben Hobson

11 comments 5772 reads

Edit: N Brown (LON:BWNG) was sold on the 18th of May 2021 and was replaced with Gear4music Holdings (LON:G4M) (stock pitch)

N Brown Group is a profitable clothing and homeware retailer with five core brands and an ancillary consumer credit division. In recent years it has been working to transform its legacy businesses by moving predominantly online, streamlining its brands, changing its marketing approach and reinvigorating its finances.

The high street was already under serious strain before Covid, and the latest headwinds have massively added to the pressures on retailers - but there have been some successes.

The investment case for N Brown rests on its ability to revive its business and set a course to flourish while others fall by the wayside. It's very much a value stock and there is no denying that turnarounds in challenging and competitive sectors are fraught with risk.

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N Brown (LON:BWNG) is a Consumer Cyclical / Speciality Retailer and trades on the AIM market (having transferred from the Main Market in December 2020). It currently has a market cap of ~£286.4m and the shares have good liquidity, with an Exchange Market Size of 15k.

It's classified by Stockopedia as a Highly Speculative, Small Cap, Super Stock, with a StockRank of 95. From a quantitative perspective, its strength are in its Quality (89) and Value (97), with weaker Momentum (54). The forecast PE ratio stands at a cheap looking 6.2x. The company has a history of paying dividends but having used the government furlough scheme during the Covid pandemic, it's currently barred from paying one.

Despite its Super Stock classification, N Brown in some ways resembles more of a Contrarian bet in the challenging retail sector, but also a Turnaround situation given its transformation in recent years.

There are undoubtedly economic headwinds in this sector - with multiple fashion retailers collapsing in recent years. However, N Brown caters for a rather different demographic and appears to be pulling off the feat of transforming a collection of legacy businesses and brands into a streamlined, well-defined offering for consumer niches that are perhaps under-served.

A multi-year transition (which recently saw the introduction of a new Home & Gift offering) caused sales to fall last year, which the group did anticipate. Declining sales have continued through Q1 - Q3 of 2021 (not…

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tennis321

8th Feb '21

I think there are initial headwinds for this company. The three big negatives for me. I expect the rules on consumer credit to get tougher( how many are now defaulting?). An internet tax for online retailers. Along with an environmental tax .

ezlifeme

Pedant alert (Apologies ) Purchased on 2nd Jan 2021? Surely Monday 4th Jan 2021

But an informative write up, thanks Ben

James Kerr1

This sums up very much more coherently what I've been thinking about this stock, which has been on my watch list for a while. For me is is as much 'when' as 'if ' and as yet I've not persuaded myself that when has arrived, but of course by the time there are more green shoots, the price will have gone upwards...

Hartshay

I was in this but got out on the last spike. I can’t see a big upside especially when the lockdown finishes. Not one for me when commodities are on a tear for the next year at least.

procterk

No mention of the massive increase in ord shares due to the rights issue and any positive or negative effects. Are you sure that the Alliance family do not now hold more than 50-% of the ord shares?

NeilBea

9th Feb '21

I have been stung a few times with this company having a positive review. Not again, momentum isn’t there for me. I’ll stick with the usual suspects in this sector.

SaarfLondon

Nice article Ben ,It is on my ever increasing watchlist!? I feel this may stay static for a while as there are more fashionable (pun alert!) sectors and stocks which are brimming with momentum

jrs

Watch below the EBITDA line. As an investor I have watched year after year skeleton's coming out the cupboard with write offs and provisions for one thing or another.

Until management can genuinely post a decent & consistent net profit position ,it's always jam tomorrow. The board was also sleeping, slow to move the previous CEO on, allowing the business model to become overly complex (poor capital allocation) and not being transparent and clearing out the skeletons earlier.

If they can get their act together and translate EBITDA performance into net profit and restore a dividend I think the shares could triple from here. (I note they are investing in more systems. Their track record of issues with new systems has been mixed).

I am holding on in terms of recovering my losses on the basis there's reasonable chance of success but it's likely to be a slow burn.

Sharewallah

Thank you Ben. It is always interesting to read these stock pitches.

portugull

11th Feb '21

I bought in on Jan 12 at 76p and it promptly dropped 16% and now sits at 60.6p.

I regard this buy as a 12/18 month purchase but clearly my timing was very poor.

The stock ranks bar Momentum are very good. I normally avoid fashion but I now have BOO and BWNG in my portfolio Time will tell.

Poker111

15th Feb '21

N Brown (LON:BWNG) - 2 sizeable Director buys from the Alliance family last week must be an additional vote of confidence, even if they do have deep pockets.

Stock Pitch - N Brown Group (LON:BWNG)

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Ben Hobson

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