• Direct beneficiary of uptick in consumer spending
We recently hosted a corporate presentation by Padini Holdings (Padini),
a well-established retailer of fashion apparel and footwear, and came
away with a positive medium-term outlook on the company. Strong brand
recognition and large nationwide store network place Padini in favourable
position to capitalise on any strengthening consumer sentiment and
spending.
• Padini Corp and Vincci Ladies continue to lead
Padini Corp and Vincci Ladies are the most significant subsidiaries in
Padini Group, together constituting 70% of FY10 group revenue and 84%
of pretax profit. Padini-branded clothing and footwear with the Vincci label
have consistently resonated with Malaysian consumers thanks to the
group’s effective merchandising strategy.
• Extending ‘Brands Outlet’ store network
The group is expanding its value proposition ‘Brands Outlet’ stores in
response to positive reception by shoppers and to expand its store
network to urban areas beyond the highly saturated Klang Valley. There
are currently 11 ‘Brands Outlet’ stores that account for 27% of the group’s
total retail floor space.
• Potential for dividend upside
Given Padini’s minimal capex requirements in the 2-year forward forecast
period, we believe that the company could pay out higher dividends than
the 15.0 sen DPS in FY10 (or 32% dividend payout ratio).
• Fair value of RM5.33
Utilising a target P/E of 10x applied to CY11 EPS of 53.3 sen, we arrive at
a fair value of RM5.33. Our target P/E is based on a 2x premium to Bonia
Corp, Padini’s closest comparable. We believe that Padini deserves to
trade at higher valuations because it has a larger store network and
higher margin product mix (with larger proportion of fashion apparel).
Target P/E is lower than Padini’s 12-year historical average P/E of 11.7x
(FY99-FY10) however, as we anticipate moderation in earnings growth
moving forward. We have projected a 3-year net profit CAGR (FY10-12) of
6.4%. Our fair value indicates a potential 9% upside to current share
price.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/PAD_101221_Non-rated.pdf
It will bring financial pain to seven million home owners with floating interest rates who will see a jump of almost £200 on a typical monthly mortgage payment.
Charities have already warned that repossessions are likely to rise next year and the threat of a succession of quick interest rate rises will exacerbate their fears.
The Confederation of British Industry predicts that higher than anticipated rises in the cost of living will push the Bank of England (BoE) to begin increasing interest rates in the spring.
It predicted that the Bank base rate – the interest rate at which the BoE lends to other banks – will rise more than two percentage points by the end of 2012. Mortgage rates are expected to follow closely behind.
“Many households have been benefiting (from the low interest rates) in terms of mortgage payments, but that will start to turn over the next couple of years,” said Lai Wah Co, the CBI’s head of economic analysis.
The organisation predicts that the Consumer Prices Index, the Government’s preferred measure of inflation, will reach 3.8 per cent within the first three months of next year and that it will still be well above the Bank’s 2 per cent target two years from now. It currently stands at 3.3 per cent.
The CBI expects interest rates to climb from their record low level of just 0.5 per cent in the second quarter next year.
It forecasts rates will rise 0.25 percentage points each quarter before the pace doubles in the middle of 2012 to 0.5 point increases, taking the bank rate to 2.75 per cent by that year’s end.
Last week, the Bank of England warned in its Financial Stability Report that two thirds of borrowers are now on floating interest rate deals and the proportion is rising. At the height of the credit crisis in 2007, the proportion stood at less than half of all outstanding mortgages.
A 2.25 per cent rise in mortgage rates would see the monthly repayments on a typical £150,000 mortgage increase from £909 to £1096.
In another blow for home owners, economists predict that the average value of a home in Britain will lose 10 per cent of its value from their peak levels earlier this year to the end of 2011.
The house price gains seen at the beginning of this year have already been wiped out, according to Nationwide.
Britain’s biggest building society said the average price of a home dropped 0.3 per cent in November, the equivalent of almost £1,000 in a month, bringing the average price of a home to £163,398.
The CBI expects inflation as measured by the retail prices index – which includes more housing costs – will follow an even higher path than CPI, reaching 5 per cent at the start of next year.
The CBI said it had raised its quarterly forecasts to take into account the “persistent strength” of energy and commodity prices.
High inflation will put further pressure on households as people face higher prices and mortgage rates, but pay packets struggle to keep pace.
Tim Moore, an economist at research group Markit, said: “December brings to a close another difficult year for household finances. The UK economy looks to have avoided a double-dip recession in 2010, but there is little evidence that household finances have even begun to recover. People have seen their spending power gradually eroded by stubbornly high inflation throughout the year and little in the way of income growth to compensate for this.”
