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Proposal to divest non-core Apparel Brands to Myer

Premier Investments (PMV) recently announced the proposal received from Myer Holdings (MYR) to divest PMV’s non-core Apparel Brands (AB) to MYR via an all-script sale. We consider few scenarios on how the move could provide revenue/margin/cost savings outcomes for the combined group if the potential merger between Myer and AB succeeds. We see various opportunities for revenue/earnings incrementality up to $3/share within our current PMV valuation.

Earnings accretion up to $3/share upside to PT

While MYR shareholders could benefit from an EPS accretion, we see upside to PMV shareholders given the ~64% post-merger ownership in MYR’s upsized earnings base from a previous 31%. While the higher earnings base yielding higher operating margins (BPe ~9% vs MYR’s current 6%) warrants a re-rate, this could see unlocking of significant value in post-merger MYR shares that PMV shareholders will own via the distribution of shares from PMV. While our current sum-of-the-parts (SOTP) driven PT for PMV reflects MYR’s current market value and AB on an implied valuation of ~$500m, a potential re-rate in post-merger MYR could add an incremental $3/share to PMV’s valuation.

Investment View: PT unchanged at $35.00, Maintain BUY

Our estimates and A$35.00 PT remain unchanged as we view the potential MYR/AB demerger as an upside to our base case. 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 view PMV’s P/E multiple of ~15x (FY25e, BPe) as attractive, considering the value that we see emerging from the potential demerger of PMV’s two key brands, Smiggle and Peter Alexander which are global roll-out worthy somewhat similar to some of the dominant players such as LOV and LULU, highly profitable in comparison to the peer group (EBIT margins wise). With the Smiggle spin-off due in Jan-25, we await updates on the leadership transition. PMV remains a key preference for us within the Consumer Discretionary sector.

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Authored by Chami Ratnapala – Analyst – at Bell Potter Securities, 3 July 2024
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