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Daily ShareChat: The Warehouse Group

By Jenny Ruth

Thursday 27th May 2010

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 Jenny Ruth

The Warehouse shares have significantly under-performed the market in the last two months and its lower third quarter sales result doesn't alter his investment view, says Florian Burch, an analyst at ASB Securities.

"Red Sheds has numerous strengths - unbeatable brand recognition, a differentiated proposition, an excellent portfolio of store locations and a well-developed and successful property development and leasing strategy," Burch says.

"When combined with capable operational management, these strengths should confer a long-term competitive advantage," he says.

"But key metrics suggest competitors have been more than keeping up and sales growth is approaching, if not at, maturity."

That means achieving same-store growth of the kind that would boost profit margins looks difficult, although the planned increase in store numbers should deliver modest revenue and earnings growth over the next five years, Burch says.

"Because of its limited growth opportunities, we judge The Warehouse to be a value play, returns from which might best outperform for short periods after the share price dips below fair value, rather than as a long-term outperformer," he says.

"That said, the stock does offer the convenience of a good dividend yield at the current price. Under our forecasts, the company should in the foreseeable future continue to have ample cash flows with which to pay dividends."


Investment rating: outperform (raised from marketperform, reflecting the falling share price).


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