It’s always frustrating when rumours of a takeover surface in a stock you’ve just sold. A case in point is Myer, which we exited only nine days ago (see Myer: Interim result 2017). We’ve long maintained that Myer shares looked underpriced, but the lack of sales growth following implementation of New Myer is concerning. It suggests those ‘wanted’ brands aren’t so wanted after all.
As we said in this week’s blog piece A Myer takeover? Don’t bet on it, the substantial shareholder notice was due to be lodged yesterday. As expected, it was Solomon Lew (although through Premier Investments rather than his private interests). Premier made the usual statement that it ‘does not currently intend to make a takeover offer’, which you can usually rely on for about five minutes.
Still, we stand by our view in that Lew/Premier is unlikely to launch a takeover just yet. Not only is Lew extremely patient, his interests are also different from yours. His family companies sell wholesale merchandise to department stores including Myer, and he can influence the outcome in any third party takeover of Myer. You don’t and can’t.
Premier’s acquisition of a stake is unlikely to result in Myer’s performance significantly improving in the short to medium term. That implies the investment case is essentially unchanged – there’s insufficient upside to account for the ongoing risk of weak sales growth. If you haven’t yet sold Myer, this provides the opportunity to sell at a price 13% higher than a week ago (taking the dividend into account). We’re sticking with SELL.