Break-up in the spotlight as Premier Investments reports
Solomon Lew will present annual results for Premier Investments on Thursday, with analysts and investors eager to hear about his plans to possibly demerge the company.
Solomon Lew will present the annual results for his fashion group Premier Investments on Thursday, with analysts and investors eager to hear directly from the retail billionaire about his plans to possibly demerge the company and unlock more than $500m in value for investors.
The latest results for Premier Investments, which owns fashion brands such as Peter Alexander, Smiggle, Just Jeans and Portmans as well as large equity stakes in Myer and kitchen appliances company Breville, are likely to be overshadowed in the rush for news on Mr Lew’s ownership plans for the ASX-listed group.
Premier Investments last month issued a trading update with guidance for the full year as well as the shock news of the departure of the CEO of only two years, former JB Hi-Fi boss Richard Murray, and revelations that Mr Lew was considering a demerger of the group he founded as a cashbox after the 1987 sharemarket crash. If a demerger proceeds, some of the best performing retail brands in the country – nightwear chain Peter Alexander and stationery store Smiggle – could be separated from the lower growth chains such as Just Jeans, Jay Jays and Dotti.
There is also a near-30 per cent stake in Myer, valued at around $140m, and similarly large stake in Breville, worth more than $780m.
Premier Investments also has about $470m in cash reserves, a franking credits pool of $327.2m, and a Melbourne office tower.
Investors and analysts have rated Premier Investments as worth as much as $41 a share in a break-up scenario.
Morgan Stanley analysts believe that in the best case scenario, Premier Investments could be worth $41 per share, with its investments unit, which includes equity stakes in Myer and Breville, accounting for $10.08, its low-growth apparel brands at $9.36, or $1.49bn overall, Peter Alexander $14.58 per share ($2.3bn) and Smiggle $9.89 per share ($1.56bn).
But there are some concerns about of the disadvantages of a two-way or three-way split of the $4bn Premier Investments.
The combined entity enjoys some economies of scale, such as leveraging its almost 1000 stores to get the best deal from shopping centre landlords.
These and other benefits of size could be lost in a break-up.
According to Morgan Stanley analyst Joseph Michael, the ‘‘dis-synergies” from a demerger would include decentralisation of key operations such as supply chain and sourcing, corporate costs, dealings with landlords and higher supplier costs.
“Potential dis-synergies are real, but are difficult to quantify for an outsider – we increase “other” operational expenditure by 50 per cent in our break-up scenario to account for these costs,” Mr Michael said.
“Dis-synergies with suppliers and landlords are longer dated and could be managed through existing relationships, particularly if Mr Lew retains his chairman role and shareholding in each entity,” he added.
In terms of the annual results released on Thursday, Premier Investments has forecast it will record total global retail sales for the 52 weeks ended July 29 of $1.64bn, up 9.7 per cent on 2022.
Premier Retail, its arm that owns the fashion and apparel brands, expects record earnings for 2023 in the range of $355m and $357m.
This represents an increase of between 6 per cent and 6.6 per cent on 2022.
Shares in Premier Investments are up 17 per cent over the past 12 months.
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