By Jenny Ruth
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Tuesday 7th July 2009 |
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Retailer Smiths City Group's current share price reflects the difficult trading environment including slowing demand for "big ticket" items and rising cost pressures, says McDouall Stuart.
Smiths City shares closed Monday at 36 cents, up from their March low at 25 cents but down from their 54 cent 12 month high.
"For the current year (ending April 2010), the company expects difficult trading conditions to remain for big ticket items," the broking firm says.
"However, the company expects to see improvements in profitability from continued benefits in working capital management, reductions in operating costs and improved efficiencies through investment in point-of-sale and other technologies," McDouall Stuart says.
Smith City underwent significant restructuring in the year ended April 2008, including store closures and staff layoffs, in anticipation of the current difficult trading environment.
McDouall Stuart values the shares at 40 cents and is forecasting reported net profit will rise from $1 million in the year ended April to $1.3 million next year, despite flat annual sales of $227.1 million. It expects sales to rise to $230.5 million in 2011 but net profit to remain flat at $1.3 million.
The predominantly South Island-based retailer began expanding into the North Island in November 2004 when it bought 80% of Wellington-based LV Martin.
BROKER CALL: McDouall Stuart rate Smiths City Group (NZX: SCY ) as hold.
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