For ailing department store Myer, no news is good news

You hear of companies that are priced for perfection — which means their share prices reflect the expectation of significant profit growth and no hiccups — and anything less can result in a big share price fall.

Myer is the polar opposite. It is priced for catastrophe so even a slither of positive news will help and more bad news probably won’t make much difference.

Its heavily owned by short sellers and its prospective price earnings ratio sits at a 49 per cent discount to the ASX200 industrial index.  Translation? The shares are cheap —  even if you think the company will make a bit less profit in 2019.

If you believe Myer has some upside potential and that the new chief executive, John King, can reverse the company’s fortunes, Myer shares are the securities equivalent to items retailers throw in the sales bin for cost-conscious consumers to rifle through.

But you won’t find an analyst with enough conviction to call Myer a buy. It’s both dangerous and a career-threatening recommendation. The bravest call in the market is a hold — most are underweight or sell.

Myer's chairman Richard Umbers ... limbering up for another bout with Solomon Lew.

Myer’s chairman Richard Umbers … limbering up for another bout with Solomon Lew.Credit:Eddie Jim

Even a whiff of positive commentary from analysts carries a caveat that the department store group continues to face challenges.

Thus for Myer it would have been heartening to see a UBS note this week that suggested an upgrade from sell to neutral. The broker cited three reasons. The first was that the Christmas retail trading, while generally soft, was not as bad as some had anticipated.

The second is that Myer may have made some progress in handing back some of its floor space to landlords — or at least sub-leasing it to other parties.

The third point made by UBS is that anecdotal evidence from other retailers suggests landlords are coming to the party on rental reductions.


Given how leveraged Myer is to the huge lease commitments it has, punching even a small hole in these costs would be positive.

So UBS now concludes that the clapped our Myer share price now represents fair value. It is far from a ringing endorsement.

Struggling though it may be, outside the sharemarket sphere, there remains plenty of interest from the public  in Myer. In that respect Myer punches well above its corporate weight — it’s a household name.

Myer is also a headline-making machine.

Its chairman, Gary Hounsell has been engaged in one of the most vicious and toxic corporate brawls in living memory — the exchange of punches between Hounsell and Myer’s largest shareholder, Solomon Lew, have been legendary.

But from a sharemarket perspective it is fairly small — with a market capitalisation of around $300 million. The swarm of analysts that cover retailing stocks don’t bother to put out much research. It has certainly been hard to drum up buyers for the stock.

Sales in the first quarter were down more than 4 per cent — but we only became aware of this because a sales number was leaked (not by Myer) to the media, and this in turn forced the company to set the record straight.

Myer shares are the securities equivalent to items retailers throw in the sales bin for cost-conscious consumers to rifle through.

There are any number of predictions around how Myer fared in the second quarter. If you talk to the Lew camp it is predicting the second quarter sales to be a disaster.

UBS  is looking for a sales improvement in the second quarter of around 4 per cent, however, it sees revenues falling for the full-year compared with the previous corresponding year.

Analysts also forecast a fall in net profit for the full year.

Meanwhile, for Myer to post anything close to the profit it made in the first half last year, it will really need to buck the sales trend or find some ways to further cut costs.

The anticipation is killing me.

Elizabeth Knight comments on companies, markets and the economy.

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