UBS consensus upgrades likely MYR

Myer Holdings Limited
Turnaround on track... Q1 LFL +1.6% y/y, guidance
reiterated with consensus upgrades likely.
Q1 FY17 Sales $719.2m; LFL +1.6% beat vs. UBSe. FY17 guidance
reiterated
MYR's Q1 sales result was ahead of expectations, and guidance for FY17 NPAT growth
was reiterated. This was pleasing given recent commentary suggesting market trends
had slowed with David Jones flagging a tougher retail environment in Q1 due to
unseasonably warmer weather (+0.6% LFL in the 1
st
19 weeks of FY17). MYR Q1 Sales
lifted 0.6% with LFL up 1.6% (vs. UBSe +1.3%). Driving the stronger result was: i) The
positive impact of continued rationalisation of unproductive space, which drove an
acc
eleration in sales per square metre to +6.0% in 1Q17 (12m rolling) from 5.6% in
FY16; and, ii) Positive momentum from previous store refurbishments, which is
expected to continue through the remainder of FY17.
UBS Estimates largely unchanged: FY17 guidance
for NPAT growth reiterated
We have lifted our NPAT estimates to reflect a slight change in NPAT guidance from
"growth pre
-implementation costs" to "growth pre and post implementation costs".
Our reported NPAT forecasts rise by 17
-20% in FY17-19e, while our underlying NPAT
forecast for +17% FY17 y/y growth is unchanged. We note our Q2/Q3/Q4 LFL
estimates are broadly in
-line with management targets. Beyond FY17 we forecast
c11% EPS CAGR and sit modestly below management's medium term targets. We
estimate that if targets are hit MYR would exceed UBS FY20e by c6%.
Retain Neutral: Green
-shoots continue to emerge but in the price
We have become incrementally more positive on MYR following the update and believe
management are making good progress in the turnaroun
d, with scope for upside risk if
medium term targets are met. However, risks remain around competition (international
players, Target / Big W turnaround), rising costs and overall execution. While MYR's
c11x FY17e PE looks attractive on face value, we view
it is fair given MYR operates in a
fundamentally more competitive marketplace than the likes of HVN, JBH and SUL. This
leaves us comfortable with our Neutral call, with the key to out performance being
acceleration in LFL sales over the rest of FY17.
Valuation: PT unchanged at $1.30 per share
We have left our DCF
-based valuation and price target unchanged given only modest earning changes