Company Overview: Premier Investments Limited is an Australia-based company, which operates a range of specialty retail fashion chains within the specialty retail fashion markets in Australia, New Zealand, Singapore, the United Kingdom, as well as Malaysia and Hong Kong. The Company also has investments in listed securities and money market deposits. The Company operates in two business segments: investments and retail. The Company's retail segment includes a range of specialty retail fashion chains. The Company's investments segment represents investments in securities for both long and short-term gains, dividend income and interest. The Company offers brands, including Smiggle, Peter Alexander, Just Jeans, Jay Jays, Portmans, Jacqui E and Dotti. The Company also offers brands, which include Breville, Kambrook and Sage by Heston Blumenthal. The Company's subsidiaries include Kimtara Investments Pty Ltd, Premfin Pty Ltd, Springdeep Investments Pty Ltd and Prempref Pty Ltd.
 

PMV Details

A Business with well-recognized Retail Brands: Premier Investments Limited (ASX: PMV) operates through its retail segment wide range of specialty retail fashion chains in Australia. The retail segment of the company is present in specialty retail markets of New Zealand, Singapore, Europe, Malaysia, and Hong Kong. The company through its investment segment, invests in the securities of the companies to get the profit either in short term or in the long term. PMV invests in money market deposits as well. The company in last few years has reflected decent performance in terms of financials and operations and has continued the successful implementation of the Premier Retail Strategy – a strategy which was begun in 2011 to drive growth through Smiggle, Peter Alexander, and its online offer while rejuvenating the core brands and controlling efficiencies. With the key objective of delivering sustainable shareholder value, the company, in 2018, delivered underlying net profit before tax of $160.3 million, up 9.2% and net cash generated by Premier (including dividends received) increased 36% for the year to $146.9 million. FY18 performance was underpinned by Premier Retail, which achieved a record $1.18 billion in sales and a record underlying EBIT of $150.1 million, up 10.3% (Y-o-Y). The company's top-line and bottom-line have grown at a CAGR of ~5.5% and 3.4%, respectively, over the period of FY14-FY18. We expect that the ongoing prudent investment in better merchants and growth in e-commerce business will support top-line growth of the company in the forthcoming years.


Revenue Trend (Source: Company Reports)

Decent Performance in 1HFY19 with strong profit from its investments: The Group’s net profit recorded a pcp growth of 13.1% after income tax of $88.8 million for the first half of FY 19. Premier Retail segment remained a key contributor to the operating performance of the company for the period. For the year, there has been a decline of 68 basis points in the CODB (Cost of Doing Business), which represents as a percentage of sales, fell to 46.3%. PMV continued its efforts to control the cost to improve the margins despite facing inflationary pressure. Over the past 1-year, Premier Retail closed 16 stores and over a period of six years, it has closed a total of 101 stores, which had become unprofitable. Moreover, PMV has Ownership Interest in Breville Group Limited (Associate) of 28.06% in 1HFY19, increasing from 27.5% at 28 July 2018. Breville for 1HFY19 reported a rise of 19.7% in NPAT. Premier equity accounts its interest in Breville and included $12.2 million of associate income in PMV’s profit for 1HFY19. As per the balance sheet of PMV, Breville holds the value of a total $238.9 million, though the current market valuation of Premier’s interest in Breville is almost three times to $602.6 million. In addition, PMV’s investment in Myer Holdings Limited stood at $34.9 million with a current market valuation of this investment at $50.4 million. Overall, at the end of the half of 2019, the company’s cash on hand was of $183.2 million.


Consolidated Financial Performance For 1H 2019 (source: Company Reports)

Segment-wise Performance: The company, mainly operates in two segments, i.e., Retail, and Investments. Premier Retail business stands for the retail segment and accounts for the main source of revenue to the company.

(a) Retail Segment (Premier Retail) remained the key contributor to the overall results with reporting a yoy growth of 7.89% in total revenue to $680.6 million in 1HFY19. There has been a rise of 11.4% in the profit before income tax to $111.0 million during the period. Like-for-like (LFL) sales of Premier Retail rose 4.6% on a constant currency basis during the 1H 2019. EBIT of Premier Retail in 1H grew by 11.1% to $113.9 million with EBIT margin expanding by 47 bps to 16.7% in 1H2018.

Apparel Brands during the period, delivered a 7.5% rise in the sales to $370.8 million. Apparel Brands witnessed an improved momentum in its sales in 1H 2019 after delivering the top-line growth of 5.5% in 2H18. During 1H19, Like-for-Like (LFL) sales of Apparel Brands grew by 8.8%, though the company closed 16 stores during the past one year. Apparel Brands’ Online sales during 1H19 grew 35.2% to $75.7 million as compared to the prior corresponding period.


1HFY19 Apparel Brands (Source: Company Reports)


Online Sales Growth (Company Reports)

Further, the company reported a 14.1% increase in Peter Alexander sales to $130.4 million on 1H18 with strong LFL sales. During 1H19, the company delivered Smiggle sales of $178.8 million. Peter Alexander opened five new stores in the first half of 2019. Overall, Smiggle signed new partnerships with leading retailers through the wholesale and online channels in ten additional countries.

(b) Investment Segment of PMV reported a growth of 36.31% in profit before income tax to $10.8 million on pcp. For Online, the company reported sales to $75.7 million, up 35.2% as compared to the corresponding period last year. PMV is receiving significantly higher EBIT margin from its online business than the company’s group average. All global sites posted strong growth and as a result, all its brands were able to outperform in the market.

 
Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 66.11% of the total shareholding. Century Plaza Investments Pty. Ltd. and Perpetual Investment Management Limited hold the maximum interest in the company at 32.55% and 11.61%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: The company posted healthy margins in the first half of FY2019. Gross, EBITDA and net margins for 1QFY19 stood at 63.1%, 18.9% and 13%, above the industry median of 23.3%, 9.0% and 5.7%, respectively. Moreover, EBITDA and net margins in the first half were up on a sequential and Y-o-Y basis. ROE at 6.5% in 1HFY19 was higher as compared to 5.8% in the first half of FY18, however, below the industry median of 7.7%.


Key Metrics (Source: Thomson Reuters)
 
Investment & Capital Management: The company, in 1H19, declared an interim dividend of 33 cents per ordinary share, that was fully franked, representing a 13.8% increase in the dividend on 1H18 which saw a dividend payment of 29 cents per ordinary share. This interim dividend was paid on 14 June 2019 to its shareholders. Moreover, Premier Retail, to boost its top-line has continuously been investing in new stores, store upgrades and refurbishments. The company has invested in 136 stores, comprised of 17 new stores and 4 Smiggle International Concessions which were opened in the first half of 2019. During the 1H19, the company’s 89% of capital investment in Australia and New Zealand stores was funded through the contributions from the landlords. For Online business, the company completed the major investments for all its seven brands in the second half of 2018.


Interim Ordinary Dividend Per Share (Source: Company Reports)

Strong Performance of Peter Alexander with 2020 Growth Plan delivering ahead of expectations: Peter Alexander’s sales during last 12 months to January 2019 stood at $234.7 million, exceeding the 2020 strategic plan’s targeted annual sales by more than $250 million. 26 new stores have already been opened under the brand in the last one & half year, which is well ahead of the 2020 Growth Plan of opening 40 stores over the duration of three years.


Peter Alexander – Sales Growth (Company Reports)

Strong growth of Smiggle: The company is planning to launch the brand - Smiggle in Canada in the mid to late 2019. The brand is planned to be launched in three major cities along with the company’s online platform. It will be Smiggle’s first exposure to a key North American market. Smiggle wholesale business will be launched in Asia and the Middle East through the partnership with five well-known retailers. This will be launched across 5 new countries, namely South Korea, Thailand, Indonesia, Philippines, the United Arab Emirates. The brand will initially be rolling out in more than 100 doors from July 2019. During the first half of 2019, Smiggle exceeded its performance in Online sales. Smiggle brand will be launched on Amazon across Europe in the second half of 2019 and in four new European countries, namely France, Germany, Italy, Spain. The brand is currently, in the process of negotiation with online giant Alibaba and other key global leaders so that other countries where the brand does not currently operate, will get the exposure.


Smiggle Sales Movement through Brand expansion (Source: Company Reports)
 
Future Outlook: Premier Retail will be launched on New Zealand transactional websites for an online business for brands like Just Jeans, Smiggle, Portmans, and Jacqui E in the second half of 2019. These will be in addition to Peter Alexander and Dotti transactional websites in New Zealand. Meanwhile, under the brand Peter Alexander, four new stores will be opened in the second half of 2019.


Key Valuation Metrics (Source: Thomson Reuters)
 
Valuation Methodology:
Method 1: PE Based Valuation Approach (NTM):

Price to Earnings Based Valuation (Source: Thomson Reuters), *NTM-Next Twelve Months

Method 2: Price to Book Multiple Based Valuation Approach (NTM):

Price to Book Based Valuation (Source: Thomson Reuters), *NTM-Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months

Recommendation: The stock of the company has fallen 5.81% in the last three months and is trading below the average of 52 week high and low prices of around $16.88 with a PE multiple of 26.21x and an annual dividend yield of 4.24%. At CMP of $15.190, the stock has support level of ~$13.6 and resistance at around $17.6. Fundamentally, the company has witnessed decent performance over the past few years. Additionally, the company’s brands like Peter Alexander & Smiggle are exceeding the company’s expectation and are on the path of excellent growth. Company’s investments are turning into profits with reporting decent growth in the first half of 2019 across the segments. Based on the foregoing, we have valued the stock using two Relative valuation methods, P/E and P/BV multiple and arrived at the target price in the range of $17.00-$17.52. Hence, we recommend a “Buy” rating on the stock at the current market price of $15.190 per share (down 2.315% on 24 June 2019).

 
PMV Daily Chart (Source: Thomson Reuters)

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