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).