Myer moves forward, but its path remains unclear
The future of the department store is a mystery. No one knows where the internet will take the concept. So, to make money, we need a short-range view.
The market was pleased with Myer's half-year result last week. But it was nothing to get carried away with, with overall revenue up 1.7 per cent and comparable sales gaining a slim 1.4 per cent.
That was enough to see the share price forge higher. Since the middle of 2012, it has doubled, outpacing the broader market by about four times.
Myer is trading on a 2014 price-earnings multiple of about 12.7 times, with investors starting to price in a gradual increase in retail sales because of low interest rates. In terms of valuation, this is no man's land.
But Myer represents much better value than at first blush. The company has entered a period of lower capital expenditure and working capital requirements.
As a consequence, a fairer way to measure the value of the group is to calculate the 2014 free cash-flow multiple. According to estimates, it is less than 11 times, or about 14 per cent, lower than the P/E multiple.
On this basis, if Myer can post a modicum of sales growth the stock is worth 15 per cent more than it is today. It also means the company can comfortably pay shareholders a fully franked dividend yield of more than 6 per cent.
APN News & Media
Old-world media stocks have come to life recently as investors intensify their search for value.
APN has experienced a tumultuous few months, with its board being overhauled, including the departure of the chairman and chief executive. This has not deterred investors, with the group's share price rising 45 per cent since the beginning of 2013.
No doubt the recent share price spike is partially explained by the decision not to undertake a capital raising to lower debt. That said, the desire to cut debt remains, raising the prospect of asset sales in the medium term. Such a move would also sidestep the issue of diluting the 30 per cent shareholding of the O'Brien family.
APN has a market value of $255 million and net debt of $465 million, equating to an enterprise value of $720 million.
APN posted earnings before interest, tax, depreciation and amortisation of $156 million for the year to December 31. This puts the company on a modest enterprise multiple of five times. In a break-up, APN Radio would attract between $270 million and $300 million based on last year's earnings. The remaining 50 per cent of APN Outdoor could be sold to Quadrant for $135 million, while Adshel and the Hong Kong outdoor operations could be worth $180 million.
Assuming APN's digital business can be sold for a small amount, investors are, at the current share price, paying about $100 million for $86 million of EBITDA generated by the publishing operations. If these assets could be sold for three to four times EBITDA, the share price could be 20 per cent more.
The publishing and direct-mail group has been a deadly value trap for investors for more than a decade.
PMP has a market capitalisation of just $68 million and, as at December 31, net debt of about $140 million, giving it an enterprise value of $208 million. With a forecast EBITDA of $69 million to $72 million, PMP is trading on an EV multiple of less than three times.
The company changed its chairman and chief executive last year. The new team has taken the knife to the business. The company forecast it would reduce net debt to $115 million by June 30, putting it on an EV multiple of 2.5 times.
With capital expenditure running significantly lower than depreciation, the cash flow should be robust in coming years. Such a scenario could see the company's debt disappear by about 2016, placing it at about one times EBITDA. If the new management team can hit its forecasts, the stock could kick from 20¢ to 30¢ a share.
The writer owns shares in
APN News & Media.
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