Not much upside in splitting up Premier retailing empire: Barrenjoey

afr.com:

What would Solomon Lew’s retail empire, Premier Investments, be worth if its most lucrative assets were split up and spun out? That’s the question on the mind of shareholders ahead of the company’s results on Thursday.

And the answer is very different – depending on who is crunching the numbers. This week, Barrenjoey Capital Markets had its turn analysing what it would look like if Smiggle, the stationery brand, and Peter Alexander, were listed on the ASX as stand-alone businesses. All up – considering the rest of the portfolio, holdings in Breville, Myer and property assets – the sum of the parts at Premier was looking something like $4.2 billion.

Solomon Lew announced the review of his retailing empire last month. Eamon Gallagher

That’s not much higher than the $3.9 billion market capitalisation of Premier in late August, when Mr Lew first said that UBS had been drafted in to consider strategic options for the retailing giant. Any deal, however, to split the company is some way off, sources have said.

“De-mergers can sometimes make sense on paper but are harder to justify in reality,” wrote Barrenjoey’s Aryan Norozi and Taylor Guyot in a note to their clients on Monday. “We believe recent share price outperformance has captured most of the ‘low hanging’ valuation ‘fruit’.”

Smiggle, Barrenjoey forecasts, was worth $1.1 billion based on its peers and its growth trajectory. Peter Alexander was worth $997 million. The value of Premier’s investments in Myer and Breville is around $958 million.

“We think a breakup would imply dis-synergies from weaker bargaining power, incremental overhead costs, and a lack of tech sharing,” wrote Mr Norozi and Mr Guyot, adding that the hit to sales and the increased costs could detract $2