Australia | Mar 30 2022
This story features PREMIER INVESTMENTS LIMITED, and other companies. For more info SHARE ANALYSIS: PMV
Following first half results for Premier Investments brokers generally set higher target prices and noted leverage towards both stay-at-home and re-opening thematics.
-Premier Investments' first half earnings rise and margins expand
-Online sales increase by 27.3%
-Well-known brands uniquely positioned for e-commerce
-Concerns around Smiggle while Peter Alexander outperforms
By Mark Woodruff
Following first half results for Premier Investments ((PMV)), brokers have generally set higher price targets.
The company owns Smiggle and operates Australian retail apparel brands including Just Jeans, Jay Jays, Portmans, Dotti and Peter Alexander. There is also a 25% holding in Breville Group ((BRG)) and a 20% stake in Myer ((MYR)).
According to Morningstar, Smiggle has limited direct competitors in its geographic markets in both A&NZ and the UK, and the brand holds the key to the company’s growth plans.
While the first half performance for Smiggle was weaker than brokers had forecast, Peter Alexander outperformed expectations.
The results, described by Credit Suisse as exceptional given trading disruptions, showed first half earnings rising by 5.5% and gross margins expanding to 65.9% from 65.3% year on year. Nonetheless, Morgan Stanley has concerns around margin sustainability due to industry wide inflationary pressures.
Macquarie notes online sales rose by 27.3% and are buttressing the performance of Apparel brands, with Dotti’s online sales continuing to grow ahead of the market.
An interim dividend of 46cps was declared compared to 34cps for the first half of FY21, which exceeded Macquarie’s 34cps estimate.
The company has seen underlying rent costs fall by -18% over three years while sales have risen by 13%. Ord Minnett notes rent cost performance again helped underpin first half results.
A net cash position of $400m supports further growth optionality and potential for M&A, suggests Macquarie.
Meanwhile, following the results, Citi has become more convinced of ongoing performance for Premier Investments. This view is irrespective of conditions normalising, as the company has well-known brands and is uniquely positioned for the shift to e-commerce.
Changing consumer preferences
According to Citi, Premier Investments' industry-leading brands and the shift to online culminates in leverage towards both stay-at-home and re-opening thematics.
Increasing work from home has meant increased spending on homewares and home clothing.
While the broker lifts its target price to $30.80 from $30.30, a Neutral rating is retained due to uncertainty over Smiggle.
Credit Suisse notes near-term uncertainty with respect to Smiggle’s growth profile following an extended period of disruption. Among Premier’s businesses, the brand is considered the most impacted by covid-related store closures and ongoing disruption to the school year.
While the brand showed some recovery in the first half as children returned to school, sales were still below Citi’s expectation. Even though schools are open, replacement sales suffer when covid-isolations are mandated.
The broker is also cautious around limited visibility on the progress of Smiggle’s wholesale strategy, and currently estimates sales not returning to FY19 until FY23.
Jarden is less cautious and expects trading for the brand to accelerate materially in the second half, which should provide a tailwind for margins.
The broker, not one of the seven updated daily in the FNArena database, lowers its target price to $30.50 from $33.70 and retains its Overweight rating.
In contrast to uncertainty around Smiggle, Peter Alexander has been a key contributor to Premier’s overall sales and earnings growth throughout the pandemic, points out Citi.
Peter Alexander complements the group’s e-commerce strategy while selling at a higher margin. The brand’s appeal actually strengthened through the pandemic, and the broker points to survey results showing households intend to continue spending time at home.
According to UBS, the brand’s potential is yet to be fully leveraged across existing categories plus new categories such as lounge-wear, and notes store expansion opportunities. Jarden can see potential to take Peter Alexander international.
Overall, FNArena’s database has six covering brokers with four Buy and two Hold ratings and a consensus target price of $31.18, which suggests 10% upside to the last closing price.
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