Premier Retail’s two key subsidiaries Peter Alexander and Smiggle are tipped to be the likely candidates for demerging, according to Macquarie analysts in a note to investors.
This is due to both brands having higher margins and growth prospects compared to other brands in the group.
The analysis comes as Premier Retail (PMV) announced a strategic review of business operations earlier this week, into capital requirements, separation costs and any cost dis-synergies. Premier noted that there is no certainty that it will result in any change, but added this could result in a demerger into two or more entities.
Based on its sum-of-the-parts valuation, Macquarie analysts noted that prior to allowing for a likely retaining stake, the demerging of Peter Alexander and Smiggle would unlock an estimated c.$1.b billion of value potentially available for capital management.
“Analysis from our Quant team in 'Demergers: Breaking up is hard to do' also indicates scope for outperformance for parent entities and eventually child entities," the analysts noted. "This may be a positive forward indicator for PMV and any divested entities being listed.”
Premier also announced that CEO Richard Murray will step down effective September 2023 and has stepped away as executive director of PMV earlier this week.
PMV CFO John Bryce will take on an interim CEO role until July 2024 or a new CEO is secured.
“[The timing of John's intended tenure as interim CEO allows flexibility for new leadership with potential outcomes from strategic review,” Macquarie analysts noted.
“John Bryce has accepted a ~$500k increase (ex-super) to his fixed salary and is receiving a sign-on retention of 25k performance rights, which vest on employment at Jul-24.”
Looking ahead, Macquarie analysts said it still expects Premier Retail’s earning before interest and tax (EBIT) margin normalising to the mid-teens percentage, or around 16% in the medium-term.
“This compares with ~12-13% pre-Covid,” the analysts wrote. “Again, as per our recent report 'Unraveling Margins' from July, this reflects the mix shift to online, as we assume high-teens % penetration post-Covid vs. low teens % pre-Covid. (sic)
“We also still expect margins moderating to these levels vs. >20% in recent years with the roll-off of rental rebasing. This also reflects scope for lower sales densities and resultant operating deleverage given the soft macro outlook.”
“The FY23 update suggest PMV still executing well on margins, particularly at the CODB [cost of doing business] line.”