MENU

Does Myer come gift-wrapped?

Not once since Myer (ASX: MYR) was floated in late October 2009 has it reached its issue price of $4.10. At the time that price was at the lower end of expectations, but the issue raised $2 billion with strong institutional and retail demand.

Myer’s price got close in late September 2010, but since then has mostly underwhelmed the market and disappointed investors, falling to a low of $1.53 a year ago. There was a big glimmer of hope with the overall rising market in the first few months of the year to a much healthier $3.26 a couple of months ago, but then fell with the broader market.

Now, two buoyant days on the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has Myer’s chart ticking up again and it was looking positively bullish, being up more than 6% intraday Thursday. Hovering around the $2.40 mark made the $2.19 bid 10 days ago look a real bargain. Like it has since late last year, Myer was also outperforming main rival David Jones (ASX: DJS), although the price of that company, at around a 4% rise, was also well above the market.

Despite the difficulties facing the retail sector, including a falling dollar increasing the cost of imports and scrutiny of the ethics of using overseas clothing suppliers, there is plenty of reason to expect Myer is going to keep trending upwards to Christmas. Increasing employment in the retail sector to May and 3.1% higher retail turnover compared to this time last year are good indicators.

Market-wide sentiment will play the biggest part in the equation — increasing consumer and business confidence might not come with changing the Prime Minister, but will come with the certainty of an election date, will surely help. And Myer can fare better than many of its peers.

Myer has a national network of 67 stores in prime retail locations across Australia. Its restructuring with the 2009 float means it can develop new sites in emerging metropolitan regions and growth corridors where department stores are still under-represented. It has longer term plans to expand to 100 stores, but perhaps more importantly has started to implement an “omni-channel” strategy to counter online competition.

However, a sleeper might be how it handles the issue of the ethics of using cheap overseas suppliers like those in Bangladesh highlighted in last Monday’s Four Corners program on the ABC. Unlike Wesfarmers’ Target, Myer has not yet signed the Banglasdesh Safety Accord. Along with David Jones, it’s always prided itself on being a little bit more upmarket, and probably needs to maintain that impression now more than ever.

Myer has a $1.3 billion market capitalisation, just under David Jones’, but has a much more attractive dividend yield of 8.4%, compared to 6.8%. On price to earnings ratio, Myer at 10.18 is well under its main rival, which at 13.73 is bang on its sector average.

Foolish takeaway

It’s not exactly a bargain basement buy after a 6% one-day rally Thursday, but Myer seems to be throwing off the shackles. It wasn’t clear why the retailer was outperforming the market so much, but it indicated that investors should be keeping an eye on it as a real opportunity.

If you’re looking for a solid investment idea, click here now to get The Motley Fool’s special FREE report, “3 Stocks For the Great Dividend Boom”. The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Andrew Ballard owns shares in Myer. 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.