David Jones
ASB INVESTMENT RESEARCH
Prepared by: Marc Hemsin – 3386122 Juthakarn Jessica Suwanasilp – 3344346 Tu Lan – 3282178 Bo Qiu - 3308317
DAVID JONES - BUSINESS ANALYSIS AND VALUATION
May 2012
ASB INVESTMENT RESEARCH
T A B L E O F CONTENT
1. EXECUTIVE SUMMARY 2. DAVID JONES’ PROSPECT AND THE RETAIL INDUSTRY 2.1 INDUSTRY ANALYSIS 2.2 COMPANY ANALYSIS 3. ACCOUNTING AND FINANCIAL ANALYSIS 3.1 ACCOUNTING ANALYSIS 3.2 FINANCIAL ANALYSIS 4. FORECAST AND VALUATIONS 4.1 FORECAST ASSUMPTIONS 4.2 COST OF CAPITAL – WACC 4.3 VALUE OF DAVID JONES 5. CONCLUSION 6. REFERENCES AND APPENDIX
ASB INVESTMENT RESEARCH
1. EXECUTIVE SUMMARY
DAVID JONES LIMITED - DJS
Recommendation
Valuation $2.20 Last Price $2.25
52 Week Range 4.35 - 2.16 Market Cap $1,216 M
Industry group Retail Business risk High
HOLD
David Jones is a leading upmarket retail department store with 37 stores throughout Australia and specialises in high end brands of clothing, cosmetics and homewares. It’s only major competitor, Myer, has strengthened its position in the retail industry and has kept pressure on David Jones. David Jones’ competitive strategy relies on its product differentiation through exclusive brand names supply arrangement, customer loyalty and reputation. However, the company and the retail industry are currently suffering and will remain in future years from online
Strong Buy
Buy $1.85
Hold $2.75
Sell $3.10
Strong Sell
$1.70
competition, a decline in consumer sentiment and poor economic conditions. In addition, the expiry of the contract with American Express credit cards in FY14 is forecasted to cause a severe fall to its earnings. Consequently, David Jones would have to prepare for the difficult conditions ahead by focusing on cost-cutting and investing capital in alternative shopping channel such as the web-store. The financial analysis reveals that David Jones has marginally become less liquid and less working capital efficient since inventory
Prepared by: Marc Hemsin – 3386122 Juthakarn Jessica Suwanasilp – 3344346 Tu Lan – 3282178 Bo Qiu - 3308317
DAVID JONES - BUSINESS ANALYSIS AND VALUATION
May 2012
ASB INVESTMENT RESEARCH
T A B L E O F CONTENT
1. EXECUTIVE SUMMARY 2. DAVID JONES’ PROSPECT AND THE RETAIL INDUSTRY 2.1 INDUSTRY ANALYSIS 2.2 COMPANY ANALYSIS 3. ACCOUNTING AND FINANCIAL ANALYSIS 3.1 ACCOUNTING ANALYSIS 3.2 FINANCIAL ANALYSIS 4. FORECAST AND VALUATIONS 4.1 FORECAST ASSUMPTIONS 4.2 COST OF CAPITAL – WACC 4.3 VALUE OF DAVID JONES 5. CONCLUSION 6. REFERENCES AND APPENDIX
ASB INVESTMENT RESEARCH
1. EXECUTIVE SUMMARY
DAVID JONES LIMITED - DJS
Recommendation
Valuation $2.20 Last Price $2.25
52 Week Range 4.35 - 2.16 Market Cap $1,216 M
Industry group Retail Business risk High
HOLD
David Jones is a leading upmarket retail department store with 37 stores throughout Australia and specialises in high end brands of clothing, cosmetics and homewares. It’s only major competitor, Myer, has strengthened its position in the retail industry and has kept pressure on David Jones. David Jones’ competitive strategy relies on its product differentiation through exclusive brand names supply arrangement, customer loyalty and reputation. However, the company and the retail industry are currently suffering and will remain in future years from online
Strong Buy
Buy $1.85
Hold $2.75
Sell $3.10
Strong Sell
$1.70
competition, a decline in consumer sentiment and poor economic conditions. In addition, the expiry of the contract with American Express credit cards in FY14 is forecasted to cause a severe fall to its earnings. Consequently, David Jones would have to prepare for the difficult conditions ahead by focusing on cost-cutting and investing capital in alternative shopping channel such as the web-store. The financial analysis reveals that David Jones has marginally become less liquid and less working capital efficient since inventory
References: 2.1 I N D U S T R Y A N A L Y S I S The retail industry has not been a shining light of the Australian economy over the past few years as it faces some of the worst trading conditions in 50 years (Hutton, 2012)