Solomon Lew's Premier Investments (PMV) could creep up on department store Myer and take control in less than four years without making a takeover bid.
This is according to analysts at investment bank Citi, in a note to clients and read by Ragtrader.
The note revealed that Premier currently owns 29 per cent of Myer and “is likely to take control at some point” if Premier’s share acquisition patterns persist. This is up from 26 per cent in late February.
“If PMV continues to creep up the share registry at 3% every six months (regulatory maximum), a controlling stake could be attained in three and a half years."
According to Citi analysts, if Myer was taken over by Premier it would expect a potential sales and margin uplift as Premier replaces underperforming products in Myer with its higher-margin range, which could amount to a circa 2 per cent of combined operating profit.
Around 26 per cent of shopping centres with a Myer store house four or fewer Premier brands - which include The Just Group brands as well as Peter Alexander. This increases to 36 per cent which houses three or fewer brands.
“We estimate that there could be ~$10 million of EBIT uplift from introducing the higher margin Premier products into Myer, or ~2% of combined FY24e EBIT.”
Analysts also expect a distribution centre consolidation between Premier’s leases in Melbourne - excluding Truganina - and Myer’s Ravenhall NDC, as well as harmonisation of supplier terms, and the expansion of Myer’s vertical integration and associated margin benefits.
“We estimate at least $25 million in potential synergies,” City analysts said.
Citi analysts also continue to drum up the possible demerger of Peter Alexander and Smiggle from the mature brands under The Just Group - which includes Just Jeans, Dotti and Jay Jays - as well as the international expansion of Peter Alexander and Smiggle in the medium-term.
“The US appears to be the obvious market to expand into for both brands while there appears to be interest from Japanese and Southeast Asian customers. We’ve modelled for a conservative international rollout that would imply ~$3 billion hypothetical valuation for PA and Smiggle.”
Premier is expected to release its half-year results on March 26.