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Market Analysis Latest ASX News

Will Myer Fail? Myer Share Price Looks Ominous (ASX:MYR)

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By Lachlann Tierney, Monday, 06 April 2020

Since the outbreak of the coronavirus pandemic, the Myer share price has plunged over 67%, valuing the company at just $115 million. Myer Holdings Ltd [ASX:MYR] released a business update last month in response to the COVID-19 pandemic...

The iconic Australian retailer could be at the end of its tether, after being forced to shutter its stores and stand down 10,000 staff at the end of March. Since the outbreak of the coronavirus pandemic, the Myer share price has plunged over 67%, valuing the company at just $115 million.

ASX MYR - Myer Share Price Chart 1

Source: Trading View

Myer Holdings Ltd [ASX:MYR] released a business update last month in response to the COVID-19 pandemic.

Among the usual thin veneer of optimism we’ve seen from a number of companies during the current pandemic, was a clue that could hint at the demise of this iconic brand.

The Myer share price has been on a steady decline for the last five years, or even 10 if you want to go back that far.

Indeed, it’s been well documented that the company has struggled to stay relevant and competitive amongst the ever-changing retail sector.

Though it’s sad to see an iconic Australian brand go under, there was ample time to fight the financial hardship at Myer.

‘The Coronavirus Portfolio’: The two-pronged plan to help you deal with the financial implications of COVID-19. Download your free report.

No cash, more problems

In the update, Myer pointed to their balance sheet as a source of reassurance for their shareholders.

Now if a company actually has a strong cash position, then that would offer some security or solace to shareholders during difficult times.

In my eyes, the issue for Myer is that they do not have a strong cash position.

This is simply how I would look at things, of course. The company may have a different outlook.

Myer’s 1H2020 results release at the start of March boasted of a ‘solid result despite macro headwinds.’

Net cash improved by $65 million to $105 million. So its net cash is almost equivalent to its market cap now.

Cost of doing business dropped by 2.6%.

And online sales were up 25.2% to $168.2 million, representing 10.5% of total sales.

However, what might seem like decent results, aren’t all they are cracked up to be.

It comes down to where the vast majority of their sales come from.

Total sales were down 3.8%. With 90% of sales coming from brick and mortar stores (which are shuttered for at least four weeks), sales could take a dramatic hit.

Cost of doing business is likely to have decreased due to the gradual wind down of physical operations and a larger focus on online sales.

However, I fear it might be too little too late for Myer to transform itself into an online success.

From high streets to squatter

The beleaguered retailer has also been forced to request rent relief from landlords.

One JP Morgan analyst warned if the business did not receive rental relief it was at risk of breaching its banking covenants and will also face a 40% hit to full-year earnings.

Wilson Asset Management, who hold a 7.7% stake in Myer, said the company would be better off closing more stores in an environment where consumers focus on saving money rather than spending it.

In its current state, Myer could be ripe for an opportunistic takeover bid.

But I expect we won’t see anything along those lines materialise until the economy begins to recover from the virus.

So, if you are searching for the companies and types of assets that are poised to benefit from the economic fallout, read our special report ‘The Coronavirus Portfolio.’ You can download that here.

Regards,

Lachlann Tierney,
For Money Morning

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

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Lachlann Tierney
Lachlann ‘Lachy’ Tierney is passionate about uncovering hidden opportunities in the microcap sector. With four years of experience as a senior equities analyst at one of Australia’s leading microcap firms, he has built a reputation for rigorous research, deep-dive due diligence, and accessible investor communications. Over this time, he has vetted seed, pre-IPO and ASX-listed companies across sectors, conducted onsite visits, and built strong relationships across the microcap space. Lachy is nearing completion of a PhD in economics at RMIT University, where his research focuses on blockchain governance and voting systems. His work is housed within the Blockchain Innovation Hub at RMIT, a leading research centre for crypto-economics and blockchain research. He holds a Master’s degree from the London School of Economics and an Honours BA in Philosophy and Politics from the University of Melbourne. Born in New York and raised in California, Lachy grew up a few blocks from biotech giant Amgen and counts among his peers various characters in the overlapping worlds of venture capital, technology and crypto. When he’s not researching microcaps, he’s most likely sweating it out in a sauna or dunking himself in cold Tasmanian water.

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All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

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