Insider: new purchases drive N Brown and Royal Mail higher 

Directors have given this pair of former laggards a huge boost. We discuss prospects here.

A £5 million purchase of N Brown (LSE:BWNG) shares by the son of the home shopping group's veteran former chairman Lord Alliance, sent the stock flying higher on Friday.

Joshua Alliance joined his 88-year-old father on the N Brown board two months ago after their role in the retailer's recent £100 million fundraising took the family's stake to 52%.

On Friday afternoon, N Brown revealed that almost eight million shares had been added to Joshua's personal holding after an acquisition made the previous day at a price of 65p. Shares closed 16% higher on Friday at 69.3p as the Alliance family strengthened their position at the group, which mainly trades online through the brands JD Williams, Simply Be and Jacamo.

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N Brown dates back to 1859 when it was founded by Manchester entrepreneur James David Williams, who pioneered catalogue mail-order shopping. In 1963, Alliance Brothers acquired the group and it became part of Lord Alliance's property company N Brown in 1970.

Lord Alliance has been a key part of the N Brown story for more than half a century, having served as executive chairman from November 1968 to 2012. The life peer also helped to build Coats Viyella into one of the world's best known textile companies.

His son Joshua, who is 31 and graduated from Manchester University in 2011, has been working for N Brown since 2014. He became director on 23 December after his family were the cornerstone of the capital raising at a price of 57p a share.

The fundraising, which was accompanied by a switch from London's main market onto AIM, has allowed the business to repay all unsecured debt and focus on investing in its digital capabilities at a time of rapid expansion for online retail.

A trading update at the start of January showed a continued recovery in product sales over Christmas, with quarterly revenues from the company's five strategic brands down 1.4% compared with 7.2% in the previous three months.

This followed strong demand for leisurewear and nightwear, offset by continued weakness in dresses, formalwear and swimwear due to the Covid-19 pandemic. Lower product revenues and regulatory changes meant financial services revenue fell 8.3% on a year earlier.

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As well as the challenges of lockdown, the company has also experienced delays of two to three weeks on stock deliveries due to the global container shortage in January. 

Chief executive Steve Johnson added last month: “We remain mindful of the ongoing uncertainty in the UK retail environment, but as a digital business, we look forward to building on the unique strength of the group's brands in 2021 and beyond."

House broker Shore Capital agrees that there appear to be better times ahead for N Brown, having completed what may prove to be a “pivotal period in its long history”.

Shore has reinstated forecasts with a profits target for the financial year to the end of February of £33.7 million and earnings per share of 5.8p. They have medium-term ambitions for 7% annual product sales growth and a 14% underlying margin.

N Brown's dividend is currently on hold, having also been the subject of a hefty cut in 2019 when the yield was 9%. The company hopes that by no longer using the Government's business interruption loan scheme it will have the flexibility to resume payments when it is able to do so.

Shares fell to as low as 10p in early April, compared with 350p in 2017, but have rebounded to as high as 80p last month.

Royal Mail starts to deliver for shareholders

A resurgent Royal Mail (LSE:RMG) share price got another lift on Friday when it emerged that chairman Keith Williams had used £32,000 of his own money to buy shares at 466p.

His purchase came shortly after the FTSE 250 index company's better-than-expected third quarter update sent shares to a fresh two-year high, and they’re up again on Monday. 

Royal Mail's fortunes have been transformed by a surge in parcel revenues, now more than offsetting the decline in the letters side of the business. With January trading also robust due to the latest lockdown boosting online shopping, Royal Mail now predicts 2020/21 underlying profits will be much better than the City had expected at over £500 million.

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Looking further ahead, there are signs that the company is finally making progress on its modernisation programme after striking a framework agreement with the CWU.

The shares had been as low as 124p in April, dealing a fresh blow to retail investors who received 227 shares from the heavily oversubscribed flotation at a price of 330p. The stock is still one of the most widely held companies on the London market, including among many of the 140,000 postal workers who were given free shares.

Prior to last week's update, Deutsche upped its target price to 550p in order to reflect the “seismic shift” in the company's outlook.