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An attractive investment

opportunity or a failing retailer?


By: Sophia, Moritz, Blake, Tremayne and Marc

Points of Analysis
Company Overview
Profitability
Capital Structure
Liquidity
Cash-flow
Future prospects
Recommendation

Company overview

Profitability

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations

Company and industry overview


Retailing
Annual growth rate: 3,3%
Department store
Annual growth rate: -0,9%

Industry
Myer

Largest department store


67 stores

David Jones
Company overview

Profitability

One of the largest


Not on ASX

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations

Financial Analysis
Dupont Analysis

Dupont analysis

One of the most important metrics for


performance of course is the Return On Assets
(ROA).

General performance figures such as Profit


margin, and asset turnover can be made

Compared performance to the general


department store industry & its closest
competitor David Jones.

David Jones was taken private in August of


2014

Comparison based on annual reports for 2012


and 2013

Data for 2014 and 2015 drawn from news


articles and information from the annual report
of the new owner.

Company overview

Profitability

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations
Sources: Own analysis, Finanalysis

Financial Analysis
Growth

Dupont analysis

Myers operating revenue growth has only been 1.7 %

Calculated Compound Annual Growth Rate of 0.42 % from 2012 to


2015.

Growth rates for David Jones as being around 3-5 % from 2013 to 2014

6.38 % revenue increase from 2014 to 2015

David Jones has significantly outgrown Myer in the last two years

Myer is lacking growth and losing market share to David Jones.

The Like for like measure is very important to the retail industry as a
measure of growth in sales.

2012 and 2013 Myers had achieved superior growth than David Jones

2014, 2015 David Jones growth rate continues to grow at a rate of 3.7%

Growth is extremely important to companies.

Growing Revenues is valued much higher than cutting costs

Company overview

Profitability

Store for store annual growth


5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%

2,40%
0,40%
2012

2013

-2%

-1,80%

1,1%
1,20%
2014

2015

-4,80%

Store for store sales growth(MYR)

Capital Structure

3,70%

Liquidity

Cash flow

Store for store sales growth(DJS)

Future prospects

Recommendations

Sources: Own analysis, Finanalysis, ASX announcements, Inside retail Australia, Company annual reports

A disappointing development in performance

20%

Unsatisfied shareholders

Decreasing return on assets

Return on Equity

Return on Assets
15%

16%

15%

14%

1,50
1,48
1,46
1,44
1,42
1,40
1,38

10%

11%

5%

10%
3%

5%

0%
2012

0%
2012

2013

2014

Significant decrease in OPM

2013

ROA (%)

2015

2014

10,0%
8,0%
6,0%
4,0%
2,0%
0,0%

ATO

7,9%
5,8%

2012

2013

3,0

Significant decrease in return 16%3%

ROA decrease from 12 % to 7 %

2,0

Dividend yield fall from 12% to 10 %

Decrease in ROA attributed only to worse

1,5

EPS from $0.24 to $0.13

7,6
7,5
7,4
7,3
7,2

1,0

7,1

0,5

7,0

0,0

Profitability

Capital Structure

Liquidity

Cash flow

Fixed Asset
Turnover (Y1)
Days receiveable
outstanding (Y1)
Inventory
Turnover (Y2)

6,9
2012

Company overview

2015

7,7

2,5

operating performance

2014

4,8%

Efficient asset management

2015

OPM (%)

8,4%

2013

2014

Future prospects

2015
Recommendations
Sources: Own analysis, Finanalysis

From industry leader to underperformer


Leading in purchasing, loosing
on company infrastructure
90,0%
80,0%
70,0%
60,0%

18,1%

16,0%

1,1%
3,0%

5,1%
3,0%

5,3%
2,7%

5,9%
2,1%

16,7%

14,7%
17,4%

16,1%

109

Rev.

107

COGS

105

Staff

103

S&G cost

101

50,0%

Admin cost.

99

40,0%
30,0%

2015

111

24,8%

22,6%

57,9%

Depr. & Amort.

97

60,7%

95

53,7%

53,2%

2012

20,0%
10,0%
0,0%
Industry DJS - 2012

Myer 2012

Myer 2015

COGS

Employee expenses

S&A expenses

Depreciation

2013

2014

2015

Significant increase in cost of doing business

COGS kept around same level

Staff cost increases significantly

7,0%
6,0%
5,0%
4,0%
3,0%
2,0%
1,0%
0,0%

5,9%

1,1%

Net Profit Margin


(MYR)

Net Profit Margin


(industry)

NPM without abnormals was 2.8% in 2015

Still below industry average

underperforming industry average

S&G cost at index 112 in 2015 while revenue is


at index 101.7

Profit
Company overview

Net Profit Margin below industry

113

Index

100,0%

Cost of doing business

Profitability

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations

Sources: Own analysis, Finanalysis, IBIS World 2015 report

Sufficient capital structure


Higher debt ratio than DJS

Debt ratio

Current ratio 1.0 during


2015, up 14% from 2012

1,40

Acid test ratio is 0.21

0,80

1,20

Capital Structure

1,16

1,19

Ratio

0,60

0,60

2014

2015

0,55

0,40
0,20
2012

High Level of debt versus


equity employed within
Myer (MYR)

Profitability

1,14

1,00

This is up 90% over the 4


year period, and is higher
than DJS

Company overview

1,19

2013

Debt to Equity (MYR)


Debt to Equity (DJS)

Liquidity

Cash flow

Future prospects

Recommendations
Sources Own analysis, Finanalysis

Liquidity
Debt level affect ratio

Interest Cover ratio

High Level of debt is


leading to low interest cover
ratio

20,00

Ratio

15,00

Interest payments a large


proportion of profits

Capital Structure

6,71

7,29

6,99

2012

2013

2014

5,68

2015

Times Interest Earned (MYR)

Equity issue in late 2015

Profitability

16,45

5,00

Interest expense / debt has


decreased over time

Company overview

10,00

14,12

Times Interest Earned (DJS)

Liquidity

Cash flow

Future prospects

Recommendations
Sources: Own analysis, Finanalysis

Cash Flow
250.000.000
200.000.000
150.000.000
100.000.000
50.000.000
0

2012

2013

2014

2015

179.914.000

225.525.000

191.576.000

96.915.000

141.067.000

129.877.000

98.542.000

29.826.000

David Jones,Net Operating


Cashflows

101.103.000,00

95.184.000,00

David Jones, Net profit after tax


after abnormals

196.737.000,00

180.036.000,00

Myer, Net Operating Cashflows


Myer, Net profit after tax after
abnormals

Company overview

Profitability

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations
Sources: Own analysis, Finanalysis

Cash Flow
0
-20.000.000
-40.000.000
-60.000.000
-80.000.000
-100.000.000
-120.000.000
-140.000.000

2012

2013

2014

2015

Net investing cash flows

-46.409.000

-66.956.000

-104.250.000

-62.350.000

Net financing cash flows

-132.721.000

-115.157.000

-95.232.000

-54.806.000

Net investing cash flows

-46.409.000

-66.956.000

-69.250.000

-62.350.000

Company overview

Profitability

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations
Sources: Own analysis, Finanalysis

Ambitious turnaround with industry challenges


Strengths and weaknesses

Failing
performance

Better Gross
profit margin
than DJS

Negative
growth rate in
industry

Unique
position in
industry

Much lower
operating cash
flows
Profitability

Challenges ahead

Revenue

Revenue
growth above
industry

Company overview

Turnaround plan

3 % CAGR

2015

2020

Capital Structure

Liquidity

Cash flow

David Jones posts best sales growth


rate in 15 years

Myer shares bounce on sales growth

Future prospects

Recommendations

Sources: Turnaround plan announcement, IBIS World 2015 report

Recommendations
An attractive investment or a risky bet?
A significant decrease in profitability
Loosing ground to main competitor
Performing below industry average

Record growth in sales in Q1-2016


Spring cleaning sale
Has to keep up growth rate for next 4 years in shrinking market

Conclusion
Based on historic performance and outlook of industry, we believe that Myer will
have problems with executing the turnaround plan. Therefore an investment in
Myer is not recommended.
Company overview

Profitability

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations
Sources: Own analysis, Finanalysis

Q&A

Questions

Company overview

Profitability

Capital Structure

Liquidity

Cash flow

Future prospects

Recommendations
Sources: Own analysis, Finanalysis

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