ASX Small Cap Favourites: Premier Investments Limited
The Premier Investments (PMV.ASX) result is always a good read and insights into the Australian discretionary retail space. Shares have continued to rise, in line with other retailers, although we think Premier’s track record and consistent performance should see it trade at a larger premium to peers. Underlying profit was 23% higher over the year – helped by falling interest rates and strong company management.
The difference between Premier and other apparel and department store names is that earnings grow as a function of margin improvement and, most importantly, top line sales growth. Comparable sales were 3.5% higher over the period – perhaps slightly disappointing on face value but one should consider that the business is cycling off a strong base. Results have been consistent, this isn’t an improvement from a poor base like Myer. This is an improvement on already very solid numbers, so naturally, the rate of growth will be lower.
In absolute terms, the business continues to tick a lot of boxes. Premier stands out from the rest of the pack given its balance sheet position – a solid investment in Breville (which is sub current market cap), a huge pool of franking credits and a cash balance above $280m which it can use to grow when opportunities are discovered. The market has been pressuring Premier to make a large acquisition for some time. However, Chairman Soloman Lew has proven time and time again that retail investments are all about timing. This cycle is no different.