Card Factory more like Cash Factory for Peel Hunt analysts

11th Aug 2015 09:52

(ShareCast News) - Broker Peel Hunt reiterated its 'buy' recommendation for Card Factory, saying the retailer was one of its top picks for the sector, especially as it was "all systems go" for the upcoming special dividend.First-half results from the FTSE 250 group indicated a 1% acceleration in the second-quarter pace of growth to 8% like-for-like sales.There were a few more store closures in Q2 "but the fact is that underlying LFL has picked up here", Peel Hunt said, which implied further market share gain."The impact of WH Smith's Card Market has clearly been negligible and has not destabilised the overall market, and it is surely time for a strategic change of direction - and probably store closures - at Clintons."The broker also expects that, net, there will be less competition this time next year than there are now, indicating that the barriers to entry from the vertical integration are working.But the main focus was the cash return that management has pledged, with news expected of a "material cash distribution" with the interim results on 22 September.'Cash Factory', as the broker calls the company, is extremely cash generative, with new stores paying back in less than a year and the business model requiring limited underlying capex and working capital investments. "Management has been very clear that it will return any excess cash to shareholders and we think that this means a return of between £220m and £335m over the next three years."