Pumpkin Patch announced a weaker-than-expected result for the
first half, driven by subdued trading conditions in Australia
and New Zealand and a one-off impact from the late delivery
of summer inventory.
Forsyth Barr broker Suzanne Kinnaird said divisional profit
margins were higher due to improved gross margins, higher
foreign exchange rates and lower store overheads.
''We expect further margin improvement and the company is
well placed for a pick-up in consumer demand. We like the
strategic direction being taken by Pumpkin Patch, although
the expected positive earnings impact of these changes will
only be seen from 2014.''
Forsyth Barr maintained a positive long-term view with an
accumulate recommendation on the company's shares, she said.
The debt-funded acquisition of Contract Resources would
provide Hellaby Holdings with both sector and geographical
diversification and a positive growth profile, Ms Kinnaird
Contract Resources was established in late 1989 and had
developed niche markets over the past 24 years, providing a
range of specialised industrial and mechanical services to
the oil, gas and petrochemical sectors in Australia and New
Zealand. It also operated in the United States and was
expanding its presence in the Middle East.
Contract Resources was forecast to generate revenue of about
$150 million and operating earnings of more than $20 million
for the 12 months to March 2014.
After including Contract Resources into its forecasting
framework, Forsyth Barr had lifted its earnings per share
(eps) forecast by 22.4% to 36.6c.
The restructured Hellaby businesses were now dependent upon a
recovery in economic activity, for which the outlook remained
mixed. The recommendation on the shares was accumulate.
Morningstar Equity had increased its fair value on New
Zealand energy company Vector to $2.60 a share, senior
analyst Adrian Atkins said.
The New Zealand Commerce Commission had finalised its gas
distribution and transmission pricing for Vector recently, in
line with the draft gas price path decisions released in
October 2012. The commission had taken into consideration
future capital expenditure, costs and allowable returns for
the next five-year period when calculating future prices.
The pricing methodologies were being challenged by Vector, as
it believed the regulatory regime did not provide incentives
investments in critical infrastructure like gas transmission
and distribution, he said.
A verdict on the matter was expected in the next three to six
Morningstar forecasts remained unchanged. The gas
transmission and distribution business would experience a
one-off impact in 2014, assuming the court ruled in favour of
the commission. Operating profit was forecast to decline from
$625 million in 2013 to $605 million in 2014 and reported
profit to fall from $200 million to $182 million in the same
Morningstar had maintained its fair value estimate of $A1.70
for retail chain David Jones, Mr Atkins said. Shares last
traded at $A3.08.
''We continue to view the Australian department store market
as becoming increasingly marginalised as established
international designs utilise the internet to increasingly
market direct to domestic consumers.''
The target demographic of David Jones was mainly upper-end
income earnings, lessening the impact of reversals in the
wealth effect. Emphasis was on exclusive supply arrangements,
private labels and broadening the customer base to the 25 to
35 age group, he said.
The mature business was under pressure from online
competition while a revitalised Myer might also be a factor.
The majority of cost-cutting opportunities had been realised
and revenue growth was now necessary to drive earnings
growth. A David Jones-branded Amex card contributed
significantly to earnings growth, but expiry of the current
contract with American Express in 2014 would result in a
sharp earnings fall, Mr Atkins said. Positives included the
strength of the David Jones brand and a strong balance sheet.
The company distributed around 85% of profit to shareholders