Pacific Retail's growth message falls on deaf ears

Friday 21st March 2003

Investors are showing an inexplicable aversion to shares in Pacific Retail Group, the country's largest appliance retailer.

The shares' lacklustre performance so far this year isn't surprising. In common with other retailers the group has reported weaker trading conditions and expects only a modest improvement on last year's record $17.4 million net profit when it reports on the March full-year.

But that result was the third straight year of double-digit growth. The September half-year was 13.6% higher at the bottom line and 46.2% higher before tax and unusuals.

The balance sheet is in good shape following last year's $67 million capital notes issue. PRG has diversified into furniture and beds, computers with its Big Byte stores, giftware with the Living and Giving acquisition and lingerie with the $39 million Bendon takeover.

So it's curious the market values its growth prospects at nothing or rather less than nothing. In the Stern Stewart wealth creators' rankings for 2002 PRG comes in at 11 out of 30 listed companies for market value added ($81 million) but its future growth value as a percentage of market value is negative 8%.

That is, the share price is assuming the company will shrink, not grow. This compares with positive 62% for fellow retailer Briscoe Group, positive 53% for The Warehouse and positive 22% for Michael Hill.

One possible problem is the group's minuscule free float. Eric Watson's Logan Corporation has 77%, Axa Asia Pacific has 11%, and Francis Securities has 5% so only 7% of the shares are "available for trading."

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