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  1. #1
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    Default BGR - Briscoes Valuation

    Just moving this over to a separate thread so as not to clog up the Chart thread (I have more to add):

    quote:Originally posted by Lizard

    Second quarter sales and margins continue the upward trend, despite all predictions of a sluggish retail outlook. Revenue up 8.4% and profit for half year expected to be "satisfactorily ahead" of last year. I estimate it will come in at $11.9-$12.4m (last year $10.2m). Plenty of cash available for the Urban Loft roll-out, so I think they can afford to up the dividend to at least 3.25cps. My current valuation is $1.66.
    Half year profit of $12.01m, dividend increased by 0.5cps to 3.5cps. Some slight softening beginning to show in sales this half, so growth likely to be lower over FY.

    I estimate FY NPAT of $28.8 - $29.4m, with total dividend 8cps. Gives forward P/E of 11.5-11.7 and net yield of 5.0% at current price of $1.60. Cash increased to $54m. My valuation edges up to $1.68, but will depend heavily on the extent of any slowdown shown in second half.

  2. #2
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    Further to my valuation, was thinking that valuation is fairly meaningless without an understanding of what outlook it is based on. In this case, the $1.68 is already based on a reduction in annual sales growth rate for 2007 to 3.5% and a reduction in margins of 1.1%. By comparison, over the 5 years of historic data, sales have grown by 9%pa and margins increased over the period by 4.7%. NPAT has increased by a compound rate of 15%pa.

    My valuation already incorporates a fall in profit for 2007 (and I suspect this is true of other analysts predictions). As analysts are reluctant to recommend companies in which the reported NPAT falls (due to the sentiment reaction), BGR has mostly been given a hold rating.

    So far, BGR valuations and share price have risen as the company has turned out to be more resilient to slowdown than expected. Should this trend continue, there is plenty of upside to valuation. A continuation of this years sales growth and margins into 2007 would raise my valuation to $2. Furthermore, a return to the historic average growth rate from 2009 for the rest of the decade would give a value of $2.65...

    Which probably all just goes to show how subjective valuation actually is. But the point is that BGR is being valued conservatively to already include a slowdown. If the slowdown fails to materially impact BGR, there could be quite a rapid move upwards in analyst valuations.

  3. #3
    Senior Member Halebop's Avatar
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    Hi Liz,

    Are you are using some sort of DCF/NPV valuation? The numbers also don't mean anything without clarifying the discount rate, termination growth rate, growth rate and time line of the growth rate.

    IE On 14 cents EPS BGR is worth $1.66 assuming the following: 3.9% Growth for 5 Years, 3% Termination Growth Rate, 12% Discount Rate.

    On top of this if I assume say $30m of their cash is surplus to requirements, I could deduct about $1.4m net interest from earnings but add 14 cents to my valuation. This would be: EPS 13.3, Growth 3.9% for 5 Yrs, Termination Growth 3%, Discount 12%, Cash Componant +14.0c. Total $1.72.

    Those assumptions are pretty modest though. Lift growth assumptions to 7% for the five years and the valuation stretches out to $1.93. My take on Briscoes is that they realy need to do something with that money. Given their business churns out reasonably good cash flow, returning it to shareholders would seem appropriate even if they have hopes of finding that bargain acquisition.

  4. #4
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    Hi Halebop,

    My valuation is DCF-based with slightly different assumptions and including cash, but, as you have shown, conservative - particularly for long term holders.

    Agree with you about the cash - as I said on the other thread in March:

    quote:If they're not going to use the $50m cash, then maybe they could up the dividend payout ratio - one way or the other, this cash remains a key potential driver for share price appreciation.
    Maybe we should crunch some numbers on what this company could be worth if they geared it and returned the excess cash ... the ROA would seem to justify it, though I'm not sure the conservative Rod would be impressed.

  5. #5
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    I have just reduced my FY07 NPAT forecast to $25.6 - $26.2m based on lower margins and higher corporate costs. This puts them on a forward P/E of about 13.5 at current price of $1.65.

    However, higher than expected revenue growth and additional store openings have increased estimates of future earnings, so my valuation stands at $1.70.

    Right now, I suspect the sp falls back slightly or tracks sideways for a while. But I still like for the longer term.

    Has anyone checked out the Urban Loft store in Auckland? I take it that this has opened now and I'd be interested in any comments.

  6. #6
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    I have to admit that I visited Urban Loft [:I] when I went into Auckland for an AGM a couple of weeks ago. I was interested to see one of the old buildings at Britomart being put to some use.
    Nice spacious feel and good decor. The goods are well presented but whether they represent good value for money or not I can not say. It is obviously an attempt to be a lot more upmarket that your average Briscoes. It seemed to be split half kitchen equipment/crockery etc and half other household stuff.
    Although I was the only 'customer' the staff I chatted to said that they get reasonably busy at lunch time and towards the end of the day. At the time of my visit they had been open two weeks.
    Whether enough office workers will pop in to buy a dozen wine glasses and a decorative vase whilst waiting for the bus is the big question.

    om mani peme hum

  7. #7
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    "New store openings" probably include the new Napier store. The old store was directly opposite Social Welfare, City Council, Air NZ and Housing Corp, Next to the Cossie Club, Lighting Direct etc. The new store is way down the road, next to nothing and on the road to nowhere. If I was a shareholder I would be worried by this strategy.

  8. #8
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    Thanks for that. I too have noticed that their choice of locations is sometimes a little odd.

  9. #9
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    quote:Originally posted by Paper Tiger
    The goods are well presented but whether they represent good value for money or not I can not say.
    On that point, it will be interesting to see if Urban Loft follows the Briscoes model of higher everyday prices, but creating "cheap" hype through high discount sales, or if it adopts a different strategy.

  10. #10
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    Acquisition of "Living and Giving" stores announced today. These stores were formerly owned by PRG. The latest report giving details of their performance was PRG's year to March 2006, where it was written as follows:

    Living & Giving

    Living & Giving has continued to refine its positioning of fashionability and
    outstanding customer service in the homewares and gift market, following on
    from a restructuring programme completed in the previous financial year. It
    closed one underperforming store during the year under review, and now
    operates nine stores.

    Living & Giving's gross operating revenue for the financial year to 31 March
    2006 was $13.1M, from $15.1M in the previous financial year, a relatively
    flat performance on a like-for-like basis given the reduced store numbers.
    Five stores were closed between May 2004 and February 2005 and therefore
    contributed to sales in the year ended 31 March 2005.

    It delivered an EBITA loss of $0.97M for the year to 31 March 2006, a notable
    improvement on the EBITA loss of $1.7M in the previous financial year. The
    management team is confident that completion of the restructuring process
    enables Living & Giving to look forward to further improvements in the
    future.

  11. #11
    Reincarnated Panthera Snow Leopard's Avatar
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    [:0] Rod buys L&G? [:0]
    I need to go lie down for a while.


    om mani peme hum

  12. #12
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    quote:Originally posted by Lizard

    I have just reduced my FY07 NPAT forecast to $25.6 - $26.2m based on lower margins and higher corporate costs. This puts them on a forward P/E of about 13.5 at current price of $1.65.

    However, higher than expected revenue growth and additional store openings have increased estimates of future earnings, so my valuation stands at $1.70.

    Right now, I suspect the sp falls back slightly or tracks sideways for a while. But I still like for the longer term.

    Has anyone checked out the Urban Loft store in Auckland? I take it that this has opened now and I'd be interested in any comments.
    Sales for the Jan qtr came out right on line with my model, to take revenue to $372m. I am currently working on the lower end of the expected NPAT range, at $25.6m. I think BGR is pretty fairly valued at current price for now.

  13. #13
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    good work Lizard.
    everyone must have taken great note of your post because the jan 1/4 report has not created even a wee ripple.
    in fact, the chart is beginning to look a bit tired, with bgr beginning its 9th week of ranging between 175 and 180c.
    the resistance level of 180 has been tested 6/7 times to no avail.
    scamper still holds some.

  14. #14
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    Briscoe Group results for the year to 28th Jan 2007 were released today.

    • Sales revenue up 8.3% to $372,078
    • Profit after tax up 5.2% to $26,048
    • Basic EPS up 5.1% to 12.3c
    • Diluted EPS up 4.3% to 12.1c
    • Final dividend held at 4.5c (to be paid 4th May, record date 13th April)
    • Total annual dividend up 6.7% to 8.0c


    The full results announcement is here: NZX - Briscoe Group FY to 28/01/2007

  15. #15
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    Default

    quote:Originally posted by Lizard

    I have just reduced my FY07 NPAT forecast to $25.6 - $26.2m based on lower margins and higher corporate costs.
    quote:Originally posted by Deev8

    Briscoe Group results for the year to 28th Jan 2007 were released today.
    [*]Profit after tax up 5.2% to $26,048
    Hi Liz...Spot on!...nice work!
    Share prices follow earnings....buy EPS growth!!



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