THE DISTILLERY: DJs daze

The decision by David Jones to revalue its property assets at $612 million is a timely reminder of just how far the department store has fallen in the last three years. The property portfolio makes up about half its market cap, with the share price having fallen 60 per cent in the last three years. But DJs' determination to make a real go of it in the online world displays a confidence that it just might be willing to bet the value of its buildings on its online abilities.

Fairfax's Elizabeth Knight is a little perplexed as to why David Jones felt the need to hire property analysts to tell them what the market already knew – its property in the Sydney and Melbourne CBDs were undervalued.

"Analysts have written reports about this, and the private equity vulture funds have run the ruler over them – and all have concluded that the book value of the property doesn't reflect the higher real value. What's more, investors have already factored this into the share price. The move by David Jones to point out this discrepancy appears even stranger because, in one breath, boss Paul Zahra tells us they are worth $152 million more than they are held on the books, but then says they are not for sale and the accounts will not be adjusted to reflect this higher value. So why bother? The only rational answer is that the property discussion was designed to tantalise the market by alluding to the potential value if they were developed.”

Indeed both Fairfax's Adele Ferguson and The Australian Financial Review's Mike Smith point readers back to the bizarre takeover approach by EB Private Equity in late June. Remember that commentators came out in droves talking about a play to buy DJs - sell the property, double down on the online strategy and wait for consumer confidence to improve before offloading the rest.

Remove the private equity firm from the equation and the department store's plan has the same ingredients.

We've already discussed the property part; now Business Spectator's Cliona O'Dowd explains the online strategy element.

"Since unveiling its blueprint for the future earlier this year, DJs has progressed with its plan to become an ‘omni channel retailer' – the goal to complement its ‘bricks and mortar' business with a strong online presence. Until now, the retailer's foray into the online market could be described as tentative at best. But that's all changed with the rollout of its latest effort, including heavy investment in developing online capabilities. To illustrate this, we only need to look at its stock-keeping units. Under its old IT system the DJs website was able to offer 9,000 SKUs. By Christmas of this year, and with the help of a new and improved IT platform, it aims to offer 90,000 SKUs. At the same time, Myer's online rollout to 30,000 SKUs in fiscal 2012.”

Meanwhile, The Australian's Glenda Korporaal reminds her readers that some attention should be paid to the presence – or lack thereof – of guidance, given the focus that Myer got when it decline to gaze into the crystal ball.

"Like Brookes, Zahra also opted not to give any profit guidance for the new financial year, citing the high level of uncertainty in the market and moves by other retailers not to give a profit guidance either. And like Brookes, Zahra was not willing to seize on some good sales numbers recently and call them a trend. But unlike Brookes, Zahra was clear that any upturn in sales in recent months was not due to any federal government compensation package which, he said, was not going into the pockets of his (more up market) customers.”

And The Australian Financial Review's Robert Harley has got his hands on a CBRE study called The Role of Real Estate in the Multi-channel World, launched yesterday from London, that speaks volumes about the DJs situation.

"For me the key finding was the way the 50 leading retailers interviewed by CBRE were transforming their 32,000 stores. Today 70 per cent see themselves as "bricks-and-mortar” retailers. In two years, 63 per cent plan to have "fully integrated multi-channel businesses”. The change is critical for all owners of retail property, from the biggest shopping centres to individual shops. It is no longer a question of bricks-and-mortar versus online. The two will blur. Retail property will blur as well.”

Fairfax's Malcolm Maiden explains just how much trouble Macmahon Holdings has gotten itself into by simply quoting competitive prices for mining companies and then botching the job. The Australian Financial Review's Chanticleer columnist Tony Boyd says the news is a blow to the construction industry's already battered credibility.

Fairfax's Maiden writes in a separate piece that Fortescue Metals Group has survived its debt problem with a dollop more of debt. Further still, the company's expectations for the iron ore prices are not in line with that of the federal government.

But, as his colleague Peter Cai points out, those government forecasts come from the Bureau of Resources and Energy Economics, which is arguably not prepared to serious predictions.

"BREE predicts that iron ore spot prices will average about $US126 ($120) a tonne for 2012 as a whole. And in 2013, the average price is forecast to decrease to $US101 a tonne, but will pick up again in the second half of the year on the back of an assumed Chinese government stimulus package. "In the second half of 2013, contract prices for iron ore are forecast to increase, based on an assumed stimulus package from the Chinese government generating an increase in steel-related consumption demand," says BREE. It seems BREE is putting all its chips on the table based on the assumption that Beijing will unleash another round of stimulus to shore up volatile commodity prices. That assumption is simplistic, to say the least - and downright dangerous if it were used as the basis for budget assumption.”

The writer is under the belief that BREE has one analyst covering iron ore and coal, Australia's two largest export earners. One guy!

In other economic news, Fairfax economics writer Tim Colebatch attended the official conference on the government's ‘Australia in an Asian Century' white paper and got to listen to two Asian economists saying it mightn't be all that fun.

And finally, Fairfax's Eric Johnston says ANZ Banking Group sold its remaining stake in Visa in some part by the increased capital requirements.