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On several occasions, I’ve suggested that the Card Factory (LSE:CARD) share price was depressed or beaten down because the market didn’t like its limited online presence.
However, that’s now changing with the acquisition of Funky Pigeon from WH Smith. The £24m purchase marks a major strategic shift, addressing long-standing concerns over its minimal online presence.
Funky Pigeon will deliver a mature digital platform, experienced technology teams, and established direct-to-recipient gifting capabilities, enhancing Card Factory’s digital proposition.
The former WH Smith brand has been operating a successful business with average annual revenues around £32m and EBITDA of around £5m over the last two years.
Cross-selling opportunities, operational efficiencies, and access to richer customer data should follow. Ultimately, this move positions Card Factory to become a top omni-channel player, uniting over 1,000 stores with a competitive online offer.
Shares surge
The share price surged after the acquisition was announced. Clearly, investors were happy to see the business make more progress in expanding its digital presence.
However, the stock’s valuation certainly isn’t too demanding. The company’s now trading at 6.1 times forward earnings and it’s expected to have a net debt position of around £116m by the end of the year.
This forward price-to-earnings (P/E) ratio’s expected to fall to 5.4 times by 2027. In fact, earnings may even accelerate faster than this, given the Funky Pigeon takeover. Remember, analysts don’t always update their forecasts immediately.
The dividend yield remains sizeable despite the rise — share prices and dividend yields are inversely correlated. The forward yield currently sits at 6% and is expected to rise to around 7% by 2027. That’s based on today’s share price and the dividend forecast.
It’s also worth noting that dividend coverage is strong at almost three times. This suggests the payments are sustainable even if the business falls on hard times.
The bottom line
Card Factory, for now, remains a traditional retailer with a distinct brand and deep ties to celebrations and everyday moments. This is a quality that helps it weather shifts in consumer sentiment.
The business has shown agility, adapting products and store formats to remain relevant on high streets across the UK. Seemingly, customer loyalty remains strong due to its value proposition and broad selection.
While the acquisition of Funky Pigeon offers new digital potential, Card Factory’s core challenge remains revitalising its high street presence and ensuring that physical stores complement, rather than compete with, its growing online channels.
After all, it’s not easy to get excited about a company that sells relatively-low-cost products from 1,000 expensive locations around the country. I say that noting the increasing cost of energy and hiring staff, especially under the current administration.
However, with solid brand equity and strong valuation, Card Factory’s one I’m watching closely. I believe it deserves attention from investors.
