The Investment Column: Decision time over Burton

It is nearly make your mind up time for shareholders in Burton Group. The demerger of the Debenhams department stores will take place in a month's time and investors, who have already been advised by this column not to sell ahead of the split, now need to decide whether to hang on to shares in Debenhams, the remaining multiples business, to be renamed Arcadia, or both.

Following the demerger, shareholders will receive two Debenhams shares and one Arcadia share for every eight Burton shares held. After yesterday's publication of the listing particulars, analysts were upgrading their estimates of the relative valuations. Some are targeting a price of 172p for the two parts, compared with yesterday's closing price of 143.25p, up 2.25p. They value Debenhams at 112p - a 15 per cent premium to the market - with Arcadia accounting for the remaining 60p. The choice for investors is between Debenhams, a highly rated business with a solid track record, and Arcadia, which potentially has more upside but also carries more risk as its record is patchy.

Debenhams certainly looks the safer bet. Its margins are already running at 10 per cent and every additional percentage point gained adds another pounds 10m to profits. The chief executive, Terry Green, reckons there is much more to go for. He plans to boost profits by rationalising the supplier base as well as cutting back on discounting to spend more weeks of the year selling at full price. A pounds 350m capital expenditure programme will pay for 10 new stores in the next five years and upgrade the remainder of the 88-strong chain.

At the multiples business, which includes Top Shop, Principles and Dorothy Perkins, the challenges are greater. Margins are only 5 per cent and the chief executive, John Hoerner, is likely to shuffle the store portfolio by converting less profitable formats into the fledgling Racing Green brand. Mr Hoerner also wants to shift selling space towards womenswear, which already accounts for 60 per cent of sales.

The challenge will be to avoid the problem which has dogged the multiples in the past, which is that whenever the difficulties of one format are resolved a fresh set of troubles seem to emerge elsewhere.

So hang on to shares in Debenhams, even though the valuation could soon look quite full. Arcadia, with its weaker brands, is more for braver souls who are seeking a recovery play.

Start your day with The Independent, sign up for daily news emails
Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appeal
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Boxer Amir Khan will travel to Pakistan in bid to 'make a difference' in the wake of army school massacre
Arts and Entertainment
Strictly finalists Simon Webbe, Caroline Flack, Mark Wright and Frankie Bridge
tvLive: Simon Webbe, Caroline Flack, Mark Wright and Frankie Bridgeface-off in the final
Sport
Ched Evans in action for Sheffield United in 2012
footballRonnie Moore says 'he's served his time and the boy wants to play football'
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture