Short-term pain for Michael Hill

Suzanne Kinnaird
Suzanne Kinnaird
The 2018 financial year is set to be messy for Michael Hill International as the jeweller works through the exit from the United States and the Emma & Roe transformation.

The company provided first-half guidance for normalised earnings of $A35million ($NZ38million) and reported profit of about $A15million after one-off accounting-related adjustments from the exit from the US and the repositioning of Emma & Roe.

Forsyth Barr broker Suzanne Kinnaird said the guidance was below expectations but the short-term pain should reduce the persistent and increasing drag on earnings.

The near-term losses looked set to be larger than anticipated, supporting the decisions made.

"In the absence of more information, we have assumed there is nothing to change our view on the core business which is the key driver of our valuation."

Long-term forecasts were largely unchanged but Forsyth Barr had revised its target share price from $1.60 to $1.55, reflecting a modest rise  in the expected costs associated with the changes.

The key driver of the company valuation was the Michael Hill brand and store base in New Zealand, Australia and Canada which offered growth through footprint expansion and scale benefits in Canada.

The company reports on February 22. The shares last traded in New Zealand at $1.19. The company’s main listing is in Australia and it reports  earnings in Australian dollars.

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