Broker snap: N. Brown acquisition is far from pants

16th Jun 2010 13:06

The acquisition of online retailer Figleaves by Internet and catalogue home shopping company N. Brown should be earnings neutral in the first year of ownership, but should boost 2012 profits, KBC Peel Hunt reckons."The acquisition will cement N Brown's position as the leading on-line retailer of lingerie. Given the enhanced scale and existing brand relationships, we would expect improved buying margins for the combined entity," investment analyst John Stevenson said. "In addition, N Brown is well placed to cross-sell its other product categories (such as footwear or home goods) into the Figleaves customer file. There is expected to be a three-month review to assess integration potential, although there is clearly a logic for N Brown to operate the distribution function over the medium term," Stevenson added.The broker is also curious whether Figleaves will bring any enhancement to N Brown's internet retailing knowledge base.KBC, which rates N. Brown shares as a "buy", has left its 2011 earnings estimates unchanged but has bumped up its profit before tax forecast for 2012 by around £2.5m to £108m."Trading on a FY2011E PER [price/earnings ratio based on estimated 2011 earnings] of 10x, backed by an attractive dividend yield and scope for further acquisitions, N Brown is another specialist retailer set to grow sales and earnings despite the tougher outlook for consumer spending," KBC reckons. Panmure Gordon is another broker getting busy with the pencil and rubber eraser. It too thinks the acquisition will be earnings neutral in 2011 but expects 2012 operating profit will be some £2m to £3m better as a result of the acquisition. "The acquisition has multiple positive aspects. 1) It gives NBrown exposure to younger more 'premium' demographic group. 2) It is a continuation of the internet sales growth strategy 3) The NBrown team will be working with Figleaves staff; people who are used to pure play e-tail. They could learn a lot. 4) The business is international and delivers to more than 100 countries including the US. This is useful for BWNG who have been in Germany for just over a year are launching in the US this summer. 5) Figleaves gives NBrown additional exposure to a cash only business," said Panmure analyst Jean Roche.Panmure Gordon rates the shares a "buy" and has named it as one of its key retail picks for 2010. The price target has been edged up to 320p from 315p.