Equity analysts at Morgan Stanley believe the new version of Premier Investments is trading at an unjustifiably low valuation, with its forecast FY26 price-to-earnings ratio (P/E) at just 15 times earnings, excluding cash and investments.
In a note to investors, the analysts claim the risk/reward for Premier (ASX:PMV) is compelling at 15x FY26e P/E for a mix of high quality consumer brands, with multiple growth levers – such as Peter Alexander’s push into the United Kingdom – and capital management options.
An interest rate cut this month, or even anywhere in the second-half of FY25, could also provide an earnings upside risk.
This all comes after PMV finalised a combination deal with Myer, offloading Just Jeans, Jay Jays, Jacqui E, Dotti and Portmans to the department store for 890.5 million shares which will be distributed to PMV shareholders.
PMV now consists of 100 per cent ownership of vertically integrated brands – Peter Alexander and Smiggle – as well as 26 per cent ownership of Breville Group.
Morgan Stanley analysts say PMV’s structure has now been simplified, “which should reduce the conglomerate discount.”
“We think 15x FY26 P/E (ex. cash/investments) is too cheap for new-PMV… for a business that could grow EBIT at 10%+ through the cycle, underpinned by offshore expansion,” the analysts wrote.
The analysts believe PMV should be valued lower than other Australian global consumer brands like Lovisa (LOV) and Breville Group (BRG) – which currently trade at an average price-to-earnings ratio of 30 times – primarily due to the uncertainty around Peter Alexander’s expansion into the UK.
However, the analysts also think PMV should be valued higher than Australian-only retailers, which trade on an average of 16x P/E and achieve an earnings per share (EPS) growth of around 13 per cent.
The latter is due to three key reasons. The first is that they like Peter Alexander and Smiggle, given they offer differentiated value propositions in niche categories, supported by innovation and branding.
“They are also highly profitable (EBIT margins ~30% in FY23/24),” the analysts wrote. “We think PA, in particular, is one of the highest quality retailers in A&NZ.”
They also emphasise that Peter Alexander is in the early stages of their UK expansion, with three stores opened there in the first half of FY25.
“We model PA to reach 50 stores in the UK by FY29E and see a broader global opportunity if the concept resonates in the UK,” the analysts project.
They also note that Smiggle’s offshore execution has been weak in recent years, but claim the brand is still strong and should benefit from a refresh under a new managing director.
In September last year, Premier axed John Cheston from the MD role alleging “serious misconduct”. Cheston is expected to take on the top role at Lovisa in June this year, while Premier is yet to announce a replacement.
“In addition, BRG's global expansion execution has been excellent, with scope for further share gains in the US/EU, as well as territory expansion in Asia.”
The analysts also project that PMV will finish FY25 with a net cash of $275 million, which could be used to accelerate organic growth, new mergers and acquisitions or returns to shareholders. “We think a buyback would be highly accretive at current levels.”
Morgan Stanley analysts have now decreased their EPS forecasts over PMV by around 30 per cent, after removing the five apparel brands that Myer have since snapped up, from its model.
“Our forecasts assume an improvement into FY26 (EBIT A$230m FY26E vs. A$203m FY25E and A$239m FY24), with further upside risk from cyclical tailwinds,” they concluded.
“Key re-rate catalysts include any evidence of PA traction in the UK and signs of a Smiggle turnaround.”