Morgan Stanley analyst John Stavliotis has initiated coverage on The PAS Group with an “overweight” recommendation and a $1.45 price target. “The resultant earnings and risk profile should see the stock trade at 11.3 times forward earnings – 45 per cent above the current share price,” Stavliotis wrote in a research note to clients on Monday. Stavliotis thinks retail acquisitions will be a catalyst: “They will likely be accretive from day one and provide a new avenue for growth.” PAS has one of the largest design and development teams in Australia, which Stavliotis says provides a competitive advantage when looking to bolt on new brands or retail chains. “The more likely opportunity is to add more brands to the Designworks portfolio; each acquisition is typically small and normally only requires the addition of a design team to extract significant operating leverage,” he says. Stavliotis notes PAS has run the ruler over 60 acquisitions since 2004 and integrated eight separate apparel industry acquisitions, noting the company is “well trained and [has] shown strong discipline”. If PAS is unable to find an attractive acquisition opportunity, Stavliotis says the company could deploy some of the $40 million worth of franking credits. “With an estimated $14 million net cash balance by June 2015, it could make a fully franked special dividend that would represent a 10.2 per cent yield on the current share price.”
PGR Price at posting:
$1.03 Sentiment: Buy Disclosure: Held
