Does today’s news make Debenhams plc, Pets at Home Group plc and Imagination Technologies Group plc a buy?

Roland Head reviews a mixed bag of updates from Debenhams plc (LON:DEB), Pets at Home Group plc (LON:PETS) and Imagination Technologies Group plc (LON:IMG).

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Debenhams (LSE: DEB) has chosen a top executive from Amazon to be its next chief executive. Sergio Bucher will leave his role as Vice-President of Amazon’s European fashion division to take over at the high street retailer.

The group’s share price hasn’t moved following news of Mr Bucher’s appointment. His e-commerce credentials seem pretty solid, but it could be that big investors are less certain about his ability to improve the profitability of Debenhams’ large store network.

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The store’s outgoing chief executive, Michael Sharp, has struggled to deliver much in the way of growth. But Debenhams is in good shape financially and looks good value for income buyers, with a forecast yield of 4.8%.

The firm’s modest forecast P/E of 9.6 also appeals to me, as it already reflects a low-growth future. If Mr Bucher manages to increase sales and profits, then the shares should react well. I rate Debenhams as a buy.

Pets look profitable

Sales rose by 6.7% to £793.1m at Pets at Home Group (LSE: PETS) last year, helping the firm’s adjusted earnings to rise by 11.2% to 15.1p per share.

The firm’s profits were broadly as expected, but shareholders were rewarded with a surprise 39% dividend hike. This takes the total payout for the year to 7.5p, giving a yield of 2.9% at current prices.

Analysts had been forecasting a full-year payout of 6p. The reason for the increase is that Pets at Home has increased its dividend payout ratio to 50% of earnings. It was previously 40%.

In my view this decision suggests that Pets’ management expects the chain’s growth to slow over the next few years. This is reflected in the latest consensus forecasts, which suggest that earnings per share will rise by less than 4% in 2016/17.

Pets at Home shares now trade on 16.3 times 2017 forecast earnings. In my view that’s up with events, so I’d rate the shares as a hold, but probably not a buy.

Shares rise after profit warning!

It’s not often that a company can send its share price up by issuing a profit warning. But that’s what has happened at Imagination Technologies Group (LSE: IMG) today. The chip designer’s share price rose by 3.5% this morning after it warned that this year’s loss would be significantly higher than expected. The latest problems have been caused by a series of one-off contract losses and bad debts. Imagination appears confident that these issues won’t spill over into next year.

Imagination also announced that current interim chief executive Andrew Heath will become the firm’s new permanent boss. After conducting an external search, the board decided that Mr Heath was the best candidate.

Unusually, Mr Heath has been a non-executive director at Imagination since 2012. So both he and the company should know each other well. However, I suspect some investors would have preferred an outsider with a fresh perspective to take over.

Imagination’s cost-cutting plans are ongoing and the firm will deliver the results of its strategic review with its full-year results on 5 July. In the meantime I remain cautious — the shares have already risen by 33% from their January low. Until we know more about the firm’s plans, I think that’s high enough.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Imagination Technologies. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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