It was apparent that, in announcing a solid Just Group result that disguised the very sharp and continuing rebound in Just’s profitability in the second half, Solomon Lew is now prepared to publicly contemplate his next move.
Premier Investments still has nearly $329 million of cash and less than $100 million of debt in a $1.4 billion balance sheet. It has very substantial capacity, probably the best part of $1 billion, to make acquisitions if it chooses to.
It also has the ability, if it so chooses, to issue equity, as it did in part for the Just acquisition. Having crashed below $3.50 after the Just deal and in the midst of the uncertainty created by the global financial crisis and economic slowdown, Premier’s share price is now back up solidly above $8.
The better-than-expected Premier result, built on a significantly better-than-expected Just performance in the second half, the big increase in dividends and the declaration of a 20 cents-per-share special dividend caused the shares to spike today and added substance to a currency that was in any event reflating.
Lew said Premier would take advantage of opportunities to add to its portfolio, if the right opportunities arise.
The nature of the Just platform means it would be quite straightforward to bolt on new fashion-related businesses, and not just necessarily clothing, to Just’s portfolio of brands. Equally, if the acquisition was not one that fitted neatly with Just’s model, it could sit alongside that group within Premier.
Lew is exceptionally well-connected within international retailing, so the opportunities aren’t necessarily confined to this market, although the state of the US and European economies and retail sectors is such that he might be wary of making a significant acquisition offshore.
The opportunity to acquire regional rights to major brands, however, has probably never been quite as propitious and that would be a lower-risk strategy for expansion. While Lew’s history and passion relates to clothing, Premier might also consider related businesses, like distribution.
Lew took a risk with the timing of the Just acquisition – he could have bought it more cheaply had he waited a few more months until after the Lehman’s collapse completely destabilised the markets – but read the cycle and Just’s latent strength very well.
In the second half, Just’s sales rose 6.3% and its earnings before interest, tax and amortisation 39%. Its trading for the first seven weeks of this financial year is in line with the improving second half trend and ahead of Premier’s budgets, even though there is yet to be any return from the focus Just’s management has had on its two troubled brands, Portmans and Jacqui E.
The underlying resurgence in Just and Lew’s own conviction – supported by the evidence of the trading results since the start of this financial year – that the fading effects of the Rudd Government’s cash stimulus packages aren’t undermining retail spending, combine to provide the foundations for Lew’s next play.
Lew is determined to use Premier to build a significant new retail group and reestablish a relationship with a market that viewed him with some cynicism after all the controversies that flowed from his long and eventful involvement with the old Coles Myer.
He was well-aware that his re-emergence as a public company chairman would attract significant scrutiny and that he would need to reassure the market that Premier wasn’t just a privately-controlled play thing – which is why there was a substantial script element in the Just bid, to open up the Premier register.
Adding former Tasmanian treasurer, Dr David Crean, and former senior UBS investment banker, Tim Antonie, to the Premier board will help build confidence in the group’s governance, while the shower of franked dollars from the increased dividends and the special dividend will keep existing shareholders very much on-side.
Lew has been in the fashion retail business and an investor and trader in retail stocks his entire adult life. His Just coup wasn’t perfectly timed but it appears to be well on the road to justifying the risk that was taken when Lew launched the bid into a rapidly deteriorating economy. It was more bold than opportunistic.
The apparent success of that play, which was built on Lew’s understanding of retailing and nose for retail conditions, will make any second big move in this market more difficult, or at least more expensive – just as investors became increasingly reluctant to buy from Kerry Packer they will be wary of selling anything to do with retailing to Lew.
This article first appeared on Business Spectator.
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