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UK shares: should I buy N Brown on its latest trading news?

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UK share prices are, broadly speaking at least, putting in a disappointing performance on Thursday. Both the FTSE 100 and FTSE 250 are down by around half a percent on news that the Federal Reserve is making plans to raise rates. The N Brown Group (LSE: BWNG) share price is having a particularly bad time today after a frosty reception to latest financials.

The clothing retailer saw product revenues return to growth in the three months to May, it said, the top line rising 4.6% from the same 2020 period.

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Sales of the UK retail share’s so-called strategic brands like Jacamo, SimplyBe, and JD Williams rose 15.5% in the first fiscal quarter. This more than offset sales of its other brands falling by almost a quarter over the same period.

However, with revenues from its financial services arm also falling 5.9% between March and May, turnover at group level edged just 0.5% higher. While the market has taken fright from this marginal increase, N Brown has kept its full-year forecasts unchanged. It expects group revenues to rise between 1% and 4% in financial 2022. Adjusted earnings before interest, tax, depreciation, and amortisation (or EBITDA) meanwhile is projected at between £93m and £100m. This compares with adjusted earnings of £86.5m which the company reported last year.

N Brown’s share price takes a whack

N Brown’s share price is up 67% over the past 12 months. But it has been gradually edging down in recent weeks and today hit its cheapest since the end of 2020. As I type it’s down 4% on the day at 56.5p. Investor appetite for the UK share has soured on resurgent Covid-19 infection rates and their subsequent impact on the government delaying its lockdown exit.

Its true that the ongoing public health emergency presents huge risks to the retailer. However, as a long-term investor I still maintain a positive take on N Brown. I like its online-only model, something which should stand it in good stead as the broader e-commerce market rapidly grows. And I also like its focus on the increasingly large demographic segments of plus size and older customers.

Indeed, N Brown chief executive Steve said, “The strategic transformation initiatives we have enacted over the past two years have now started to deliver product revenue growth, with customers responding well to the new ranges across our core brands”.

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Too cheap to miss?

Those recent share price falls mean that the British retailer now changes hands on a forward price-to-earnings (P/E) ratio of 8 times. This leaves it well inside the bargain-basement terrain of 10 times and below that is often characteristic of high-risk stocks. But I don’t think N Brown is worthy of such an accolade.

City analysts in fact believe that the UK retail share will rebound from a 9% drop in earnings per share in financial 2022 with a 25% bottom-line bounce the following year. Of course, forecasts can change based on future developments, and I’m not rely on them. But I’d happily buy N Brown shares for my own shares portfolio in anticipation of excellent earnings growth beyond the medium term.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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