Just Not The Ticket

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This story features PREMIER INVESTMENTS LIMITED.
For more info SHARE ANALYSIS: PMV
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

The shares of mid-range, youth clothing retailer Just Group ((JST)) have dropped 45% since the November market peak. Before the full impact of the credit crunch hit, Just was a bit of a market darling in the retail space, constantly running up in share price and then forcing brokers to revise their overbought calls when earnings were better than expected.

But Wave II of the credit crunch saw rather a reversal of fortunes. For one thing, Just has funded its aggressive store roll-outs on a high level of gearing. For another, recession talk in the US affected weak sentiment for the discretionary retail sector. And finally, rising inflation and subsequent interest rate hikes in Australia sealed expectations of a consumer slowdown, in which Just would surely suffer.

None of which was lost on seasoned retailing expert Solly Lew.

Solly Lew controls the investment vehicle Premier Investments ((PMV)) which yesterday announced a bid for Just Group for $2.20 cash and 0.25 Premier shares. The bid values Just at around $4.18, or a 5.5% premium to yesterday’s closing price. This is a bit light compared to the 30%+ premiums of the pre-crunch days.

Which is exactly how securities analysts see it. Realistically this is an opportunistic bid from a seasoned player attempting to cash in on current negative sentiment for what has proven to be a well-managed company in the past. But while the analysts all agree sentiment is justifiably dour in the retail space, they also agree the 45% fall in share price has been enough compensation, if not more than enough.

Analysts are expecting earnings growth for FY08 in the mid teens, dropping down to single digits in FY09-10 (except for Citi, which is still forecasting 16% in FY09). But on those numbers Just is still yielding 5-6%, making it an attractive hold for an eventual turnaround provided gearing does not become an issue. Analysts do not appear to be concerned.

And let’s face it – in a recession do we stop buying jeans? Maybe the ladies rein in their habits a bit, but don’t forget some indulgences do well in a recession – for example, hairdressers. Ladies still need a fix, so if they can’t afford to lash out on clothing they feel better with a new do. In Just Jeans case, we’re not talking high-end couture. And young people in particular cannot be seen dead in anything from Tarjay that isn’t a “brand”. There’ll be knock-down sales for sure, but that provides a good opportunity for the savvy retailer.

Just like Solly Lew.

Analysts suggest this is not the time to dump out holdings in Just Group at what might be near the bottom of the market. There may not be a whole lot of interest from other potential bidders, but the Just board has certainly rejected this one and the advice is to hold tight.

Just is showing a 2/6/0 B/H/S ratio, with research house Aspect Huntley introducing a rating called Reject The Bid/Hold. The average target is $4.55.

Now if Levi would just bring back 501s…

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