Billabong, Myer lead rally for battered stocks

BATTERED retail shares earned some much-needed respite this week as investors questioned whether heavily sold stocks could be worth a look following better-than-expected numbers.

By InvestSMART · 7 Jul 2012

By InvestSMART ·
7 Jul 2012

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BATTERED retail shares earned some much-needed respite this week as investors questioned whether heavily sold stocks could be worth a look following better-than-expected numbers.

Shares in the surfwear retailer Billabong International surged 12.5 per cent as investors bought into the stock after Macquarie Group announced it had become a substantial shareholder. Myer's share price has rebounded 20 per cent to $1.81, since slumping to a record low of $1.54 last Thursday.

"We've been very bearish on the discretionary retailers but its something I'd like to go back and have a look maybe the next week or the week after just to see whether it might be time to edge back into some of these [shares]," Tony Wilson, an analyst at Evans and Partners, said.

"They've come down so far they do look cheap, but I still have some concern around the earnings for the listed retailers."

The electronics retailer JB Hi-Fi has also risen 13.5 per cent to $8.99, after closing at $7.92 on Tuesday.

Billabong's shares closed 13?, or 12.5 per cent, higher at $1.17 yesterday, two weeks after posting a record low at just above 93?.

Macquarie issued a substantial change of notice for Billabong shares on Thursday evening, saying it had taken a 5.8 per cent stake.

The Morningstar analyst Tim Jones said Macquarie could merely be taking up part of the recent share offer.

"They would have got diluted so when they take the offer up they make an announcement to show what their holding was," he said.

It occurred on a quiet day when many fund managers were on holidays, so it would not take much to drive the share price up, he said.

Mr Wilson said investors might have been encouraged by nominal retail figures released by the Bureau of Statistics on Wednesday, which had been stronger than expected. "Whether that translates through to improved profit figures, that remains to be seen ... their cost structures are still under pressure."

The chief market analyst at CMC Markets, Ric Spooner, said it was unclear what was driving Billabong's share price yesterday.

"The fact that [Billabong] has come down so far and so fast ... often when they do correct, the correction can be fast as the market tends to reappraise things," Mr Spooner said.

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Frequently Asked Questions about this Article…

Why did Billabong shares surge recently?

Billabong shares jumped after Macquarie Group filed a substantial change of holding, reporting it had taken a 5.8% stake. Analysts also noted the move came on a quiet trading day, so even modest buying could push the price higher, and some suggested Macquarie may simply have taken up part of a recent Billabong share offer.

What did Macquarie’s 5.8% stake in Billabong mean for investors?

Macquarie’s notice signalled a noticeable ownership position, which can attract investor attention. Morningstar’s Tim Jones said the stake might reflect participation in a recent share offer (meaning dilution and subsequent re‑reporting of holdings), while other analysts cautioned the announcement could have moved the stock more on low liquidity than on a change in fundamentals.

How much did Myer’s share price rebound and why should investors care?

Myer’s share price rebounded about 20% to $1.81 after slumping to a record low of $1.54 the previous week. The move drew attention because beaten-up discretionary retailers are being reappraised by the market, but analysts remain cautious about earnings and cost pressures, so the rebound doesn’t necessarily mean the company’s fundamentals have turned around.

What drove JB Hi‑Fi’s recent share rise and how big was it?

JB Hi‑Fi rose roughly 13.5% to $8.99 (from a close of $7.92 on Tuesday). The article links this lift to a broader relief rally in battered retail stocks after some better‑than‑expected retail data, though no single company catalyst was specified.

Are battered retail stocks now a good buying opportunity?

Analysts in the article were cautiously interested but not decisively bullish. Tony Wilson said the discretionary retailers ‘look cheap’ after big falls and he may ‘edge back in’ to take a look, but he also warned about earnings risks and cost‑structure pressure. That suggests careful due diligence and timing are important before buying.

How did Bureau of Statistics retail figures affect investor sentiment?

Nominal retail figures released by the Bureau of Statistics were stronger than expected, which may have encouraged investors and contributed to the short‑term lift in retail stocks. Analysts stressed, however, that stronger nominal sales don’t automatically translate into improved profits given ongoing cost pressures.

Could the recent rallies in these retail stocks be temporary?

Yes. Commentators in the article warned the rallies could be fragile: the market can reappraise stocks quickly after big falls, trading days with low liquidity can exaggerate moves, and the drivers behind some jumps (for example Billabong’s) weren’t clear, so the gains may not be sustainable without better earnings evidence.

What should everyday investors watch for next in these retail shares?

Investors should monitor company earnings and cost‑structure updates, participation in any share offers (as in Billabong’s case), consumer spending trends reflected in official retail data, and overall market liquidity. Analysts in the article suggested waiting to see whether improved retail numbers translate into profit recovery before committing significant capital.