By Jenny Ruth
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Monday 20th September 2010 |
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The Warehouse Group produced a "slightly sombre adjusted annual net profit of $83.2 million, below her $84.3 million forecast, says Buffy Gill at Goldman Sachs JB Were.
Reflecting continuing and increasing quarterly declines in same-store (stores open 12 months or more) sales, Gill has cut her 2011 to 2013 net profit forecasts by between 6% and 8%.
She now expects an $85 million normalised net profit for the year ending July 2011, $86.6 million the following year and $87.6 million in 2013.
Gill has also cut her valuation from $3.60 a share to $3.35, although she has a 12 month target of $3.60.
She says the stock's relative valuation metrics are "looking stretched," The Warehouse continues to lose market share and has "a below-average growth outlook reflective of a mature business."
However, the company's decision to increase its dividend payout ratio from 75% of adjusted earnings to 90% is "more suitably reflecting a mature business."
The increased payout is also likely to attract income investors into the stock, putting a floor under the share price at about $3.50 which would reflect a 7% yield, Gill says.
"We expect glimmers of M&A hope and two large shareholders still on the register to also give support to the share price."
Recommendation: Sell.
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