More Upside Potential For Premier Investments

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

By Chris Shaw

As an example of how much the fiscal stimulus measures offered by the Australian Government have impacted on the economy, retail group Premier Investments ((PMV)) yesterday lifted guidance for full year earnings before interest and tax to an increase of 34-41% on the back of a strong June quarter, well up from previous guidance of a decline of around 10%.

UBS notes the new guidance implies a significant improvement in margins, which the broker suggests reflects not only postivie operating leverage in the group, but solid execution as well. As well, UBS notes the company will be cycling relatively weak comparative numbers in the first half of FY10, so it has re-run its numbers to factor in the changes.

As a result, the broker has lifted its earnings forecasts by 13% for 2010 and by 9% for 2011, meaning in earnings per share (EPS) terms it now expects 51c and 55c respectively against its current forecast of 59c for FY09. Citi has made similar increases to its numbers, lifting its FY09 forecast by 9% and its FY10 number by 10%. Its EPS estimates now stand at 59.1c this year,  47.9c in FY10 and 50c in FY11.

Citi sees some upside risk to its new numbers from any successful re-positioning of the Portmans chain, a good outcome from negotiations with landlords and the retention of all tariff reductions in the coming year, while higher competition and any Aussie dollar weakness would pressure earnings in its view.

With management lifting guidance and given an improved consumer spending outlook, both Macquarie and GSJB Were have also increased their earnings forecasts, the latter by 13-16% in coming years. This means in EPS terms GSJBW is forecasting 53.8c this year, 51.9c in FY10 and 58.1c in FY11, while consensus forecasts according to the FNArena database now stand at 57.3c and 50.3c for FY09 and FY10.

Looking forward, UBS sees scope for growth via acquisitions as the company is expected to have around $242 million in cash available at the end of FY09, with deals to acquire privately held or listed retailers and licencing of global brands seen as possibilities in its view. If such deals are not forthcoming, GSJB Were expects capital management initiatives, most likely via special dividends.

Given the increases to earnings forecasts stemming from the increase in guidance, price targets have also been increased, with the database now showing an average price target of $7.10, up from $6.24 previously. There were no changes in ratings, with the stock scoring three Buys, one Hold and one Reduce.

Shares in Premier Investments today are slightly stronger and as at 11.40am the stock was up 5c at $6.27 amidst an overall depressed share market. Over the past year the shares have traded in a range of $3.05 to $6.35.

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