Demerger could mean 60% upside for Premier Investments share price: Morgan Stanley

Is this retail player a discounted bargain right now?

| More on:
A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Premier Investments Limited (ASX: PMV) share price could be significantly undervalued, according to the latest commentary from investment bank Morgan Stanley.

Premier Investments owns a number of businesses including Smiggle, Portmans, Just Jeans, Peter Alexander, Jay Jays, Jacqui E, and Dotti. It also has sizeable stakes in Breville Group Ltd (ASX: BRG) and Myer Holdings Ltd (ASX: MYR).

Breakup on the cards?

Less than a month ago, the company announced that it has commenced a formal review to assess its corporate, operating, and capital structure, with a particular focus on Peter Alexander, Smiggle, and the apparel brands.

Premier Investments wants to ensure that each of its brands is "best-positioned to take advantage" of opportunities. Both Peter Alexander and Smiggle are growing significantly and are planning offshore expansion.

The ASX retail share is considering splitting the company into two or more entities.

The review will look at capital requirements, business plans, management structures, separation costs, and any cost 'dis-synergies'.

How much would these separate businesses be worth?

The Premier Investments share price is currently sitting at just under $26.

According to reporting by The Australian, the broker Morgan Stanley has suggested the ASX retail share could be worth up to $41 per share in a breakup, with Peter Alexander being worth $14.58 per share.

The apparel brands – ones like Just Jeans, Jay Jays, and Dotti – might be worth $9.36 per share. Premier Investments' stakes in Myer and Breville could be worth $10.08. It was also reported that Morgan Stanley believes Smiggle could be worth $9.89 per share. It took off $2.91 for losing the benefits of being one company.

Morgan Stanley's base case for a split-up is for a Premier Investments share price of $31.50.

These numbers imply that Premier Investments could be worth between 22.5% to 60% more than it's currently trading at.

The analysts at the investment bank suggested the benefits of a demerger would be best seen in about two years' time. Morgan Stanley said:

It is unclear if Premier would be prepared to sell any businesses outright but if everything was potential for sale, at the right price, this could eliminate any holding discount.

If the consumer backdrop worsens, we think the number of [merger and acquisition] M&A opportunities will increase and vendor pricing will decrease.

Premier Investments share price snapshot

Since the start of 2023, Premier Investments shares have risen 3.3%, compared to a 3.7% rise for the S&P/ASX 200 Index (ASX: XJO).

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Premier Investments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retail Shares

Woman thinking in a supermarket.
Consumer Staples & Discretionary Shares

Coles and Woolworths shares shrug off Greens vow to 'dismantle their power'

The Greens are targeting the profit growth posted by Coles and Woolworths at a time when consumers are struggling.

Read more »

footwear asx share price on watch represented by look holding shoe and looking intently
Retail Shares

Why I just invested $3,000 in this ASX 300 share that's down 30%

I’m excited by this stock for the long term.

Read more »

Young girl with green hair and big bow dancing with joy
Dividend Investing

This high-yield ASX share could pay a dividend yield of almost 14% in FY25!

This stock could continue to be a fountain of cash.

Read more »

Exhausted young Caucasian woman lying on comfortable sofa in living room sleeping after hard-working day, tired millennial female fall asleep on couch at home, take nap or daydream, fatigue concept
Retail Shares

Young people are cutting spending the most. Which ASX retail shares may be affected?

New data shows under 40-year-olds are cutting their spending the most in the cost-of-living crunch.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Retail Shares

Harvey Norman share price higher despite falling sales and first strike AGM vote

Almost 82% of shareholders voted against the company remuneration report at the AGM today.

Read more »

Photo of two women shopping.
Retail Shares

ASX retail shares stronger following Black Friday and Cyber Monday sales

Official retail data released today indicates shoppers delayed their spending in October ahead of the sales.

Read more »

A woman sits on sofa pondering a question.

I'm close to buying this beaten-up ASX 300 share next

Here's a company I think is well worth considering.

Read more »

A young boy wearing a hat, sunnies and striped singlet looks fierce and flexes his arm in victory.
Small Cap Shares

Why this ASX small-cap stock is an 'undervalued growth opportunity' for 2024: fundie

The ASX small-cap share has managed to increase profits and earnings despite difficult market conditions.

Read more »