Markets Live: Myer shares up 12 pc

Markets Live: Myer shares up 12 pc


Lucy Battersby

Updated

Key Points

  • Myer posts $38.4 million half year profit, but sales fall 2.8 per cent.
  • Australian dollar around 70.8 US cents
  • Wall Steet’s S&P500 closes down 0.1 per cent
  • GDP growth of 2.3 per cent below expectations

Analysts are happy with Coles’ announcement yesterday that it willsell its pubs and pokies business for $200 to a joint venture called Queensland Venue Co, owned by private equity firm KKR and pub titan Bruce Dixon.Coles is 0.2 per cent lower at $11.35today.

UBS’sBen Gilbertis more pessimistic about Coles than other analysts and has a sell rating on the stock, but a buy on Woolies and Metcash.He is worried about the cost of managing director Steve Cain’s focus on long-term growth and long it will take for “catch up investment…to yield results”.

“The key question is what Coles will do with the proceeds. We see capital management and acquisitions as unlikely, and believe Coles will use the proceeds to fund capital expenditure under-investment.”

Deutsche Bank’sMichael Simotashas a hold rating with a $12.50 target price and says the deal as positive for a few reasons.

“1)it separates Coles from the operation of pubs which reduces social and reputational risk; 2) it removes Coles’ economic exposure to an industry with regulatory risk; 3) it removes distraction and puts the hotel assets in control of an operator who can extract more value from them (evidenced by the healthy implied multiple); and 4) it provides $200m capital which will help to fund the supermarket investment,” he wrote in a note to clients.

“We like the food retail industry given inflation is building and we want to like Coles following its derating. However with costs growing faster than sales, margin dilution will be difficult to avoid and cycling the Little Shop boost will make matters worse.We believe Woolworths will gain sharefor some time and is a better way to play the inflation thematic which justifies its premium.”

So not everyone is surprised by 0.2 per cent GDP growth in the December quarter.

Reserve Bank governorPhilip Lowe has ruled out interest rate rises this yearon the expectation that the economy will not experience the desired level of inflation to shift from his newly adopted neutral bias to tightening.

It’s hard to think of a scenario where interest rates would need to go up this year.The inflation pressures are very benign, wage growth remains low and the current rate of wage growth is unlikely to generate an inflation rate of 2.5 per cent,” he said. Other factors are weighing on inflation too.

“Governments are responding to the cost of living pressures people feel by and reducing the prices of the services that they deliver, reducing the rate of increase. There are quite a lot of things weighing on the rate of inflation at the moment so I think it’s quite unlikely that inflation is going to be a problem any time soon. And if it’s not, then we can keep with the current setting of monetary policy for some time.”

Read the full story from Vesna Poljakat the Financial Review

NAB’s latest data on online spending – based on what its clients do with their NAB cards and spending on BPay and Paypal – shows a0.5 per cent month-on-month contraction in January, following 2 per cent contraction in December.

“While the pace of contraction in month on month slowed, the latest result still points to the aftermath of large online sales events in November bringing sales forward. It is also reflective of continued underlying weakness in the broader retail sector,” NAB’s chief economistAlan Ostersaid.

“A key bright spot in January was with Games and Toys growing at 3.4 per cent, while Grocery and Liquor, and Media sales recorded no growth in month-on-month terms…So while people continued to play more games online, stream music, read books and join in festive celebrations catered at home during the holiday period, they were more reluctant to commit to durable goods like furniture, appliances, hardware, and sporting and recreational goods.”

Myer’s boss John King says he expects “lumpy” sales– read falling – at the retailer for at least another 12 months as it weens itself off the drug of discounting to drive sales.

“We took a month worth of discounting out of half the year, so there was four weeks that we didn’t promote. And we’re doing the same as we speak now,” King told analysts on an earnings call this morning.

“So you’ll see the stores bump along at thelow negative single digit for the course of 2019.”

Myer’s sales fell 2.8 per cent last half, Myer said on Wednesday. Credit Suisse analyst Grant Saligari crunched the numbers and reckoned sales in stores fell more like 5 per cent with the difference made up by online sales (which jumped 18.6 per cent to $151 million – or about 9 per cent of total sales).

In light of that King said Myer was cutting floorspace – closing floors but not stores, which landlords were supporting – and would move to a distribution centre model for online orders. Currently staff run around picking online orders off shelves in stores, which King said was not sustainable given how online was growing. The online surge over the Black Friday weekend last weekend caused chaos, he said.

Myer’s long-suffering investors appear happy, or at least relieved, with Wednesday’s result. Shares are up 12 per cent at 46c – the highest they have traded since November.

TheGDP figures have come in under expectations.

Quarterly growth for December is 0.2 per centandannual growth from December 2017 to 2018 is 2.3 per cent, compared to expectations of 2.6 per cent.

The Australian dollar has dropped from 70.95 US cents to 70.52 US cents, a drop of 0.6 per cent.

TheMYOB takeover is getting more interestingwith New York-based fund Manikay buying up nearly 10 of the stock and saying MYOB should be valued “well in excess of $4 per share”.

Institutional trading is very heavy this morning, withinternational brokers BTIG trading nearly $34 million worth of stockat $3.39 in a handful of block trades this morning. MYOB has accept a takeover offer from KKR at $3.40 a share, unanimously recommended by the board.

However, Manikay wrote to MYOB chairJustin Milnethis week saying it has “a deep understanding” of MYOB and strongly supports management’s performance. However, it is disappointed the board accepted the KKR offer at $3.40 per share, especially after an earlier offer of $3.77 per share.

“Since then, equity markets have rallied significantly, and the financing markets have normalized, such that a sale of the Company at $3.40 per share does not represent a fair and reasonable deal for company shareholders,” Manikay told Mr Milne. It values MYOB “well in excess of $4 per share”.

Manikay’sShane Finemorehas also helpfully told ASIC to ensure the Scheme Booklet and draft independent Expert Report includes this latest information.

Baby-formula maker Bubs Australia is up 16.7 per cent to 70 centsthis morning after announcing a joint venture with a Chinese-listed company to market and distribute its formula and organic baby food in China. Bubs has signed a memorandum of understanding with Beingmate Baby & Child Food Co, which has 30,000 stores.

“Under the proposed Joint Venture, Bubs will supply infant formula and organic baby food products to Beingmate’s distribution network…[and] will finalise a sales and marketing plan to cover both Bubs Organic baby food range which is sold in around 500 stores in China, and Bubs infant formula which is currently sold into China via various cross-border e-Commerce and Online to Offline platforms”.

Perthlings have been waiting for wave energy developer Carnegie Energyto lodge its half year results, and this morning it has – revealing a$45 million loss due to a $35 million write down in its wave energy intellectual propertyand $6 million from it solar micro-grid business. Net tangible assets per share have dropped from 42 cents to 4 cents.

In a bid to reduce costs Carnegie sacked 28 staff and is trying to sell its Energy Made Clean business. Trading is still suspended. Shares last traded at 0.4 cents.

The bell has rung on the ASX and trading has started.Myer is up 18.3 per cent from 41 cents to 48.5 centsafter reporting a $38.4 million profit for the half.

And the index has climbed14 points already to 6215, thanks to gains in BHP, Woolworths, Newcrest and Suncorp.

Brambles is down today as it goes ex-dividend.

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