MYR in Holding Pattern: Are Myer Shares Cheap Now?
At time of writing, the share price of Myer Holdings Limited [ASX:MYR] is down 0.56%, trading at 53.5 cents.
As you can see, Myer shares have been trading sideways since the end of June:
Today, we look at their efforts to re-jig the business and the impact of buy now-pay later services like Afterpay and Zip. Our conclusion is that Myer shares are potentially cheap, depending on your investment horizon.
Myer shares up over 30% in 12 months, but will the revamp work?
The Myer share price has improved significantly from this time last year – up more than 30%.
In previous coverage, we suggested it would struggle to break resistance around 75 cents, and also that at the 63-cent mark, it would underperform due to weak retail sales data out of the ABS.
So it appears we are getting things right, but let’s look at their plan to increase to profitability.
As the Australian Financial Review (AFR) reports, their plan hinges on trimming floor space:
‘Myer is in negotiations with landlords such as Scentre Group, Vicinity and GPT Group to reduce floor space by about 30,000 square metres, or about 4 per cent, in the short term and as much as 20 per cent longer term by handing back surplus floors, for example, closing one floor of a two or three- level store.’
CEO John King says that this is a ‘massive priority.’
The same article details a UBS report indicating that by reducing floor space by 10%, this strategy could bring in $21 million in savings, including $18 million in rent.
This is probably wise given the company’s ongoing shift in emphasis towards online sales.
But as per their most recent half–year results, the company still has a fairly sizeable debt of $95.4 million (down $57 million on FY2018).
It may take some time to right the ship, it seems.
Myer’s online sales growth could plateau
What of these online sales though? They were up 18.6% in the most recent results…
Again from the AFR, a UBS analyst is quoted as saying that with regards to recent retail sales, ‘Growth largely reflects a shift to online, with retailers telling us [buy-now, pay-later] offers can make up [more than 50 per cent] of online sales.’
However, the same analyst says that the growth plateaus or ‘stabilises after 12 to 18 months.’
So Myer could potentially struggle to replicate this growth in upcoming results.
With all this being said, Geoff Wilson’s Wilson Asset Management group of companies have increased their stake in Myer with the founder saying recently their earnings could double and the share price could hit the $1 mark.
If this is to happen though, it is my view this would not be possible until the tail-end of this year.
The reasoning behind this is the following:
1) NAB recent downwards revision for near–term retail sales growth
2) The aforementioned ‘plateau’ for online sales growth.
As a result, if you are willing to stick around for the ongoing revamp of the business, you could stand to benefit in the 6–12 moth range.
If you are trading with a shorter investment horizon though, it may be wise to look for other options.
For Money Morning