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Debenhams shares bounce back as CVA rumour quashed

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Debenhams has been in the news since the weekend as shareholders have speculated about the financial health of the company and whether it may be forced to join other high street giants in closing stores.

Sir Ian Cheshire, the chairman of Debenhams, confirmed that the department store will be closing some stores, but denied that this was in response to the voluntary arrangement the company is working on. The Company Voluntary Arrangement allows a firm to exit leases on properties or renegotiate terms.

Many high street names in the UK have opted for a CVA, including brands like Homebase, Mothercare and Carpetright. Debenhams shares were up over 7% on the day on the news that the store has not to date adopted a CVA, although they are well down from their 30 day high of 13.71. Debenhams rushed out a trading statement on Monday confirming that it would meet analysts’ forecasts for 2017/18.

The market remains jumpy around the prospects of UK high street retail.

“The company has already warned on profit in 2018 and announced plans for a series of job cuts,” says Russ Mould, investment director at AJ Bell.

Mould noted that Debenhams shares, alongside House of Fraser lists the “material presence” of Mike Ashley, owner of Sports Direct, on its shareholder registration. He thinks there is bound to be speculation around whether Ashley is waiting in the wings, with plans to capture another big high street brand, just as he did House of Fraser.

“The rationale for combining the two to create the House of Debenhams is compelling enough,” said Neil Wilson, chief market analyst at Markets.com “As previously noted, combining the two businesses, reducing overheads and at a stroke removing a key leg of competition, seems like the only viable solution for the two ailing department stores. The fact is the market is screaming for restructuring and consolidation looks a sensible route to take given the well documented pressures on the sector…We may yet see a hostile takeover to create a high street giant with enough heft to survive.”

The behaviour of long-term investors towards Debenhams shares has been bearish since mid-May, according to financial data analyst Irithmics.

Irithmics, which uses artificial intelligence to assess investor behaviour, says its data suggests that longer term investor behaviour is approaching the lower end of their implied target price and this may partly explain the leveling off the Debenhams share price in recent weeks.

 

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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