A Preview To Myer’s Interim Result

This story features MYER HOLDINGS LIMITED. For more info SHARE ANALYSIS: MYR

By Chris Shaw

Having listed late last year, this week will be the first time department store owner Myer Holdings ((MYR)) has to face the music of a profit result as the company reports its interim earnings this Thursday.

According to JP Morgan, there are unlikely to be any major surprises in the result, as along with the recent 2Q sales result management guided to interim earnings growth of around 10%. In normalised terms JP Morgan expects a net profit after tax of $110.5 million, while GSJB Were is slightly more positive in forecasting net profit for the half of $113.3m.

The headline result will be adjusted for factors such as about $134 million in one-off costs associated with the initial public offering, while JP Morgan also points out the result implies an effective tax rate of 30%.

Myers maiden profit result should show some margin improvement according to JP Morgan, as the stockbroker expects gross margins will have risen from 40.6% in the first half last year to 41% in the first half of FY10. This will reflect private labels making up an increased proportion of group sales and the achieving of some cost savings.

GSJB Were agrees the result will deliver some EBIT (earnings before interest and tax) margin expansion of around 70 basis points to 9.9% and it sees both the product shift and initiatives such as the CCTV (closed circuit TV) rollout reducing theft as helping in this regard.

Along with the sales result last month, GSJB Were notes full year earnings were reiterated, which implies an EBIT result for FY10 of around $261 million and a net profit of $160 million. To reflect this, JP Morgan is forecasting earnings per share (EPS) of 19.1c for the half and 27.9c for the full year, while GSJB Were's forecasts are 18.8c for the half and 27c for the full year.

The consensus full year EPS forecast according to the FNArena database stands at 27.3c, while the consensus EPS number for FY11 is 30.6c.

One issue leading into the result according to Bank of America Merrill Lynch is sales growth, as on its estimates this is running at less than the prospectus growth forecast of 3.0% for FY10. BA-ML analysts see this target as unlikely to be achieved this year.

JP Morgan will also be watching for any update in this regard, particularly as to how Project Blue Sky will work and how management plans to drive sales growth going forward. One method appears to be via additional promotions, GSJB Were pointing out there will be further investment here to try and drive sales growth in the second half.

Leading into the interim result, the FNArena database shows the majority of brokers are positive on the stock, as while BA Merrill Lynch rates the share as Neutral and Aspect Huntley has an Accumulate rating the others all have Buy recommendations.

The average price target for Myer according to the database is $4.37, which implies almost 27% upside from current levels. The forecast yield on the stock is around 6.0%.

Shares in Myer today are stronger and as at 11.30am the stock was up 5c at $3.44, which compares to a trading range since listing of $3.12 to $3.98.

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