Forsyth Barr has downgraded The Warehouse shares to reduce
following the retailer's acquisition this week of the Noel
Leeming Group for $65 million.
The sharebroking firm has lowered its share target price to
The Warehouse traded just above $3 yesterday with more than
175,000 shares changing hands.
Noel Leeming includes Bond and Bond stores, a total of 92
outlets throughout New Zealand.
Forsyth Barr broker Tom Bliss said that notwithstanding the
earnings per share accretion, and the relatively small size
of the deal, the strategic rationale was questioned.
The consumer electronics sector is intensely competitive and
characterised by low margins and price deflation,'' he said.
We question the attractiveness of the acquisition given the
unfavourable market dynamics.
The Warehouse had struggled to date to compete effectively in
the consumer electronics segment through the Red Sheds, Mr
Bliss said. This in part reflected the intensely competitive
nature of the category which was led by specialty retailers.
While in theory the acquisition might give the Red Sheds
greater access to brands, in practice that was unlikely to
happen, he said.
The Warehouse Group had started a major five-year strategic
plan of reinvestment and revitalisation to arrest market
share falls at its flagship chain. That followed a change in
"While we are encouraged by the early positive signs, we
believe investors are likely to remain cautious until
evidence of improving profitability begins to emerge,'' Mr