Given Houlihan Lokey are closely looking at strategic options for PGR, and given the compelling value available from a break up and trade sale of the various business units (see previous post), I have run some numbers to look at this from Coliseum's perspective. Given Colliseum purchased this stock over a 3-4 year period between 2014 to 2017 at what, based on disclosures, I estimate to be an average cost of about 60 cents, they need significant value accretion to even get to a positive IRR. The following table shows what share price they require on exit to achieve various IRR's assuming they exit in Dec 2019. (Please note this ignores dividends for simplicity but should only impact the analysis by a few cents).
Based on my earlier post, I believe a breakup over the next 12 months (post ramp up of new Designworks contracts and swimwear growth), can achieve an IRR of 10%+ (equating to a share price of 84c+). The key risk to this is the ongoing drag from Myer concession sales in the Review business (which remains the key near term risk for this stock generally). That said, they could still sell Designworks within 12 months for more than the current market cap of PGR, which would reweight this business towards Review and swimwear, which are highly sought after brands for various trade buyers. Obviously this is all just my opinion, but its not often where you invest in a company at this price with a major shareholder who is extremely focused on maximising value within the next 1-2 years.
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