Premier Investments Limited (ASX: PMV) shares have recently pulled back meaningfully from their highs.
While this is disappointing for owners of the ASX 200 stock, it could be a buying opportunity for the rest of us according to analysts at Bell Potter.
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What is the broker saying about this ASX 200 stock?
The broker notes that fellow retailer and merger candidate Myer Holdings Ltd (ASX: MYR) has released a trading update for FY 2024.
This update was somewhat mixed with positives and negatives. It commented:
Myer (MYR) provided a trading update with FY24 revenue -2.9% to $3.26b and NPAT $50-54m, implying a larger than usual 1H seasonality skew and a ~$10m NPAT decline in Myer's 3 specialty brands, sass & bide, Marcs and David Lawrence. The comparative sales trend appears to have slowed down from +4.9% at the start of 2H24 to +0.8% (2H24) with MYR noting a challenging consumer/trading environment which implies a flat run-rate for Apr-July (BPe). However, the overall trend implies a better comp growth for the in-store channel from 1H (+0.1% on pcp) to 2H (+0.8% on pcp).
What does this mean for Premier Investments?
In light of the above, Bell Potter remains confident that the Smiggle and Peter Alexander operator will deliver a result in line with the market's expectations for FY 2024.
Commenting on its expectations for the ASX 200 stock, its analysts said:
PMV last updated the market in Mar-24 reporting that the first 8 weeks of 2H24 was back to pcp levels implying positive comps. The Easter trading period, Mothers' Day and the EOFY trading would be key to the 2H Premier Retail topline performance and the promotional intensity/shift to value in a weak consumer backdrop key to 2H margins. We remain broadly in line with Consensus at the FY24e overall revenue/EBIT line. While most of the recent trading updates and June ABS spend have been a positive read-through, we think 2H growth expectations (flat like-for-like sales growth) from Consensus/BPe appear reasonable. PMV should also benefit from continuing weaker comps in 1H25 (global sales -2% on pcp in the first 6 weeks of 1H24).
Why buy?
Bell Potter has reaffirmed its buy rating and $35.00 price target on the ASX 200 stock. This implies potential upside of 15% for investors from current levels.
And if you include the 4.1% dividend yield it is expecting over the next 12 months, the total potential return stretches to approximately 19%.
However, the broker sees scope for its shares to rise beyond its price target if its demerger unlocks value. It concludes:
Our estimates and A$35.00 PT remain unchanged. Our PT is based on a SOTP with a 13x multiple for core brands, 5x for Apparel Brands and a current market valuation for MYR. We see upside to our PT from the potential demerger of PMV's two key brands, Smiggle & Peter Alexander which are global roll-out worthy somewhat similar to likes of LOV/LULU and highly profitable vs peers (EBIT margins wise) and the potential merger of PMV's Apparel Brands with Myer (Synergising non-core brands).
We await updates on the Smiggle leadership transition and AB/MYR demerger. We see PMV's P/E multiple of ~16x (FY25e, BPe) as attractive and view the pullback as opportunity. PMV remains a key preference for us in the Consumer Discretionary sector.
