Daily ShareChat: Kathmandu

Kathmandu Holdings' reported 0.6% rise in first quarter sales in constant currency terms is a good outcome, given the tough trading conditions and the strength of the same quarter a year earlier when sales rose 19.2%, says Craigs Investment Partners.

"While the first quarter trading update has given us more confidence in our forecasts, it is not enough to get us excited about a PER (price-to-earnings ratio) rerating story, given first quarter sales are typically a very low proportion of full-year earnings," the broker says.

The commentary at the annual shareholders' meeting "suggests the challenging trading conditions experienced in (the six months ended June) have continued into the first quarter 2011. Kathmandu commented that trading is uncertain and volatile with discretionary retail spend under pressure. This is consistent with commentary from other discretionary retailers," it says.

Investors may be attracted to Kathmandu as a value play because of its projected three-year compound annual growth rate in earnings per share of 16%, underpinned by its store rollout and refurbishment program – it plans 15 new stores in financial 2011.

"On a risk-reward basis, we would still prefer to wait until visibility improves."

Craigs values the stock at $2.15 and has a $1.60 12-month price target.

Recommendation: Hold.

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