Daily ShareChat: The Warehouse Group

The Warehouse Group's report of flat trading over Christmas points to a lacklustre first-half result although recent share price weakness seems overdone, says Daniel Reynolds, an analyst at Craigs Investment Partners.

The low share price provides investors with an opportunity to receive an attractive yield, see capital growth and gain a free option on any mergers and acquisitions activity.

Reynolds is forecasting the first-half result, scheduled to be announced on March 12, will show a flat $57.1 million net profit in line with recent guidance.

The Warehouse has limited value-adding growth opportunities but it does have strong operating cashflows, he says. "We believe an increased dividend payout ratio or more frequent special dividends are a distinct possibility."

The retailer could lift its payout ratio to 90% in 2011 and beyond while still maintaining its long-run adjusted gearing within its 25% to 40% range as well as allowing for capital spending on an additional two small-format stores a year.

"In the short-term, however, and assuming no second-half property acquisitions, sufficient imputation credits exist for The Warehouse to pay a second-half special dividend similar to the 10 cents per share special paid in the second half of 2009," Reynolds says. He has a $4.31 12-month target price.

BROKER CALL:  Craigs Investment Partners rate The Warehouse Group as buy (raised from hold).

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