Forecasts Up For Premier

This story features PREMIER INVESTMENTS LIMITED. For more info SHARE ANALYSIS: PMV

By Chris Shaw

Given recent guidance from management, the Premier Investments ((PMV)) full year result of a net profit of $82.7 million was no great surprise and equity brokers generally view it as a solid result that showed more positive than negatives.

One such positive, according to Citi, was that earnings before interest and tax came in a little above what it had forecast, while the fact the company included a special dividend of 20c in its total dividend of 38c shows, in the broker’ view, a commitment to releasing the franking credits the company has on its balance sheet.

As these total $260 million or around $1.77 per share after the latest payout, there is some attraction for investors in the broker’s view. Citi thus expects the stock should continue to enjoy market support going forward. What should also help is the likelihood of continued solid earnings growth, which UBS sees as likely given the business is still cycling a weak first-half result in FY09.

The performance of the Portmans chain was the major disappointment, but here UBS expects performance will improve, something that could add as much as $6.9 million or 5.6% to earnings before interest and tax on its numbers. Such a turnaround is necessary as Citi notes like-for-like sales for the chain fell 10.6% in the second half of FY09, though in its view any improvement is likely to take twelve months or more given new management has only recently been put in place.

Where the company could also benefit in the coming year and beyond in Citi’s view is from lower advertising costs as it continues to shift to a direct marketing format. The broker estimates this could generate a cut of 33% from previous advertising costs, which implies an improvement in margins going forward.

Performance generally appears to be improving, Macquarie noting for the first seven weeks of the new financial year trading generally is in line with the improved results generated in the second half of FY09. Citi commented on the same thing, pointing out results year-to-date are ahead of management’s budget.

Post the full year result UBS has lifted its earnings per share (EPS) forecasts by 7% in FY10 and 11% in FY11 to 55c and 61c respectively, while Macquarie has increased its forecasts in both years by 14% to 56.9c and 59.4c. Consensus EPS estimates according to the FNArena database now stand at 52.9c in FY10 and 57.1c in FY11.

Upside to these numbers comes from acquisitions or capital management according to Macquarie, with both an option given the strength of the company’s balance sheet at present. Macquarie continues to see value in the stock at current levels as despite recent share price gains it calculates the shares are trading on less than 12 times cash adjusted earnings, which is a significant discount to both peers and the overall market multiple.

While Macquarie rates the stock as Outperform, UBS has downgraded to Neutral from Buy post the result to reflect a less attractive valuation post the recent gains, while Citi retains its Hold rating. Overall, the FNArena database shows the stock is rated as Buy twice, Hold twice and Sell once, with an average price target of $8.01, up from $7.10 previously. There is a wide range of price targets, Macquarie clearly the most bullish at $9.20 compared to Citi at just $6.70.

Shares in Premier today are stronger and as at 2.10pm the stock was up 39c or 4.8% at $8.54. This compares to a trading range over the past year of $3.05 to $8.59, which it traded at today.

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