Tuesday 22nd April 2014
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Shares in Warehouse Group, New Zealand's largest publicly listed retailer, rose to a six-week high after the stock was upgraded to 'buy' at brokerage Craigs Investment Partners.
Warehouse jumped 1.8 percent to $3.32, its highest since March 10. That's a discount to the stock's 12-month price target of $3.64, Craigs analyst Chris Byrne said in an April 17 note where he upgraded his recommendation from 'hold'.
Under chief executive Mark Powell, who notches up three years in the job next month, Warehouse is investing in its core 'red shed' stores and has bought 11 businesses in the past 18 months as part of a plan to grow the 'non-red' side of its business to be as large as the general discount stores. While investors are questioning when the investment will translate into higher profits, the retailer's expansion into financial services by buying the Diners Club business last month is a good strategic move, Byrne said.
"Warehouse has announced that it plans to be a leading retail financial services company within five years," Byrne said. "We are of the view that this is a good, low-risk strategy given Warehouse's ability to build a business of scale."
Auckland-based Warehouse aims to build a finance book worth about $600 million by 2020. Based on the earnings of Fisher & Paykel's finance business, which was a similar size, Warehouse could build a finance business worth $68 million to $90 million in that time, Byrne said.
The business doesn't appear to be overly risky and is an opportunity that Warehouse "should not pass up", Byrne said.
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