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Kalkine Daily 31/03/2015 + Pacific Brands

Mar 31, 2015

In today’s daily we have covered stock research on Pacific Brands (Expensive).








 

The S&P 500 was up by 26.22 points or 1.27% on Monday and closed at 2086.49 points. U.S. stocks advanced, rebounding from last week’s downdraft, as investors snapped up health-care companies following a spate of deal announcements. The Dow Jones Industrial Average rose 286 points, or 1.6%, to 17999 in afternoon trade. The S&P 500 rose 27 points, or 1.3%, to 2088. The Nasdaq Composite climbed 55 points, or 1.1%, to 4947. Stocks rose from the opening bell, with shares of UnitedHealth Group Inc. posting among the biggest gains of Dow components on Monday, rising 2.5%. The health-care company said it would acquire pharmacy-benefit manager Catamaran Corp. for about $12.8 billion in cash. Catamaran shares soared 24%. Gold prices fell for a second straight session on Monday as the rally triggered by the Federal Reserve earlier this month begins to lose steam.

Shares of biotechnology stocks were among the sharpest decliners last week, amid fresh worries about their lofty valuations. On Monday, the Nasdaq Biotechnology Index gained 1.1%, and is up nearly 3% over the last two sessions. Horizon Pharma PLC agreed to buy Hyperion Therapeutics for $955.7 million in cash. Horizon shares jumped 16% while Hyperion stock rose 8.4%.  Energy stocks rose, with the S&P 500 Energy Index outpacing other broad sector indicators with a gain of 2.1%. U.S.-traded oil futures fell 0.4% to $48.68 a barrel. Elsewhere in the market, shares of Tesla Motors Inc. rose 2.7% after Chief Executive Elon Musk said in a tweet that the electric vehicle maker will unveil a new product on April 30.




TESLA Daily Chart (Source - Thomson Reuters)
 

S&P ASX 200 was down by 74 points or 1.2% on Monday and closed at 5846.1 points. Australia's biggest standalone oil producer Woodside Petroleum dropped 3 per cent to $34. Among other major players Origin Energy lost 4.4 per cent to $11.20, and Oil Searchfell 5 per cent to $7.16. Santos shed 6.8 per cent to $7.02. Petrol seller Caltex Australiawas the worst-performing stock in the ASX 200, slumping 9.1 per cent to $34.44 after US oil giant Chevron offloaded a $4.7 billion stake in a block trade on Friday night. 

Resources giant BHP Billiton lost 2.1 per cent to $30.10, while main rival Rio Tinto slipped 1.2 per cent to $55.85. Pure-play iron ore miner Fortescue Metals Group lost 3.8 per cent to $1.93 amid fears the iron ore price will fall below the company's recently stated breakeven price of $US52 a tonne. Copper miner PanAust bucked the gloomy trend as it rocketed up 40 per cent to $1.72 after the board revealed it was considering a $1.71-a-share off-market takeover offer from major shareholder, Chinese State-owned Guangdong Rising Assets ManagementSlater and Gordon were placed in a trading halt after confirming a plan to raise $890 million of equity to fund the purchase of the professional services division of troubled British firm Quindell for $1.225 billion.



Slater & Gordon Daily Chart (Source – Thomson Reuters)

 
Top Performers on the ASX 200 were :-

 


 

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Pacific Brands Video



 

Stock Of The Day - Pacific Brands (Expensive)

Pacific Brands (PBG) reported for an underwhelming half year results with the net loss after tax of $108.7 million owing to non-cash impairment charges. These charges, which were of the order of about $138.5 million, were experienced based on change in approach and currency depreciation. The Company conveyed that Bonds, Berlei and Sheridan brand name carrying values were not impacted though.


Group Results (Source – Company Reports)

There was a 6% rise in continuing business sales supported by 15% rise in Bonds and 14% rise in Sheridan. The opening of 13 Bonds stores along with good store growth in Bonds (up 24%) and Sheridan (up 10%) even at the time of low promotional activity helped PBG. However, the Company still faces challenges with regards to wholesale business while growth has been steered by retail. The wholesale business suffered turbulence predominantly with regards to the discount department stores. The Company reported that Continuing business EBIT before significant items was $31.5 million (down 24% on prior corresponding period), which as per PBG is in consensus with its guidance.


Underwear Performance (Source – Company Reports)

There was a slump in underwear earnings based on poor wholesale sales and margins, with total sales rising by 4.1% to $252.6 million for the half; though, performance by the retail segment has been robust. Thus better earnings were noted for Sheridan, the standout performer (sales growing 13.7% and EBIT up 5.4% pre-significant items). Further, cost savings helped in increasing the earnings for Tontine and Dunlop Flooring (sales up 1.2% to $43.8 million and EBIT before significant items up 13.8% to $2.9 million). PBG further stated that there has been a decrease in gross margins by 3.6pts to 48.5% versus prior corresponding period emanating from annualisation of 2H14 dip in underwear wholesale margins and the effect of foreign exchange, import costs, product mix and price rise. However, there was a 0.3 pts rise in margins contrasted with the 2H14 with wholesale margins and greater clearance levels balanced by the effect of an increasing retail in-store and online sales.


Sheridan Performance (Source – Company Reports)

The good points also entailed reduction of net debt from $249.1 million at June 2014 to $24.2 million. This was a resultant of factors such as divestments (Workwear and Brand Collective), working capital management and solid cash conversion of 135% from 100% in 1H14.

However, the not so good news has been relating to zero interim dividend declared by the Company for the half. The Company intended to prioritize the balance sheet strength and aims to review the dividend opportunity at the full year. The Company also reported for an increase of 5.1% in cost of doing business by $7.7 million to $158.6 million. It has been noted that the investment in retail expansion turned out to yield positive net contribution to EBIT while there was a decrease in store expenses as a percentage of sales given operational improvements.



Store Rollout Trajectory (Source – Company Reports)

The industry is dealing with a lot of pressure given the recent fall in the Australian dollar. In fact, PBG’s FY15 trading update and outlook looked feeble with continuation of challenging market conditions. The Company admitted that 2H15 results will be dependent on May and June. PBG conveyed for 2H15 EBIT (before significant items) to be up on prior corresponding period but not to outdo $31.5 million of 1H15. PBG further stated that its hedging policy may cause the average AUD:USD rate through the P&L to be c.0.892 in 2H15. The Company has clearly stated that poor foreign exchange rates are expected to impact margins, inventory balances and cash conversion from 4Q15 continuing into F16 and F17. It needs to be seen how the Company will try to act through reduction in cost of doing business, mix improvement and further price rise. The overall scenario does not look alluring in view of the earnings outlook while we also notice poor sales from few floundering brands.


Pacific Brands Chart (Source - Thomson Reuters)

We believe that the stock of EXPENSIVE at the current price of $0.455.



 
 
 


Level 13  167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147


        
Note - You can also view this daily in the special reports section.

 


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