Card Factory rises as UBS hails "unique business model"

25th Jun 2014 09:47

Shares in newly-listed Card Factory received a boost on Wednesday after UBS initiated coverage of the stock with a 'buy' rating, hailing the company's "unique business model" and strong growth prospects.Card Factory designs, manufactures and sells its own greeting cards and this so-called 'vertical integration' provides protection for industry-leading margins and gives the company a "sustainable competitive advantage", UBS said in a research report."[Card Factory] has developed a circa 16% market share over the past 16 years through like-for-like (LFL) growth and significant new space rollout. "The high return on capital employed and the quick payback on new investment provide very robust cash generation and potential for cash returns."The bank sees Card Factory as a "clear winner" of the recent changes in the retail landscape which has seen increased customer preference for 'value players'. It pointed out that the company has an average card price of under £1 which is over 50% cheaper than other card specialist retailers.What's more, UBS said: "The average age of the UK population is increasing and, with older customers generally buying more cards, Card Factory should benefit from its higher market share in this segment."It expects Card Factory to continue to grow operating profits by around 10% over the next four years on the back of consistent low-single-digit LFL growth, mid-single-digit contribution from new space and good cost management.The bank has given the stock a target price of 260p, above the offer price of 225p at the time of its flotation in London on May 20th.Card Factory was trading 2.6% higher at 209.75p by 10:18.BC