Myer Holdings Limited (Myer)

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Prospective analysis – forecast
The previous reports have already approached the industry and financial analysis of Myer. This report will analyze the forecast, valuation and application of Myer, including forecasting the major data, valuating share price under four model and discussing the opportunity and challenge of Myer.

1.Forecast sales growth rate
As one of the most important indicators, sales can reflect directly Myer’s financial performance and influence other indicators. Therefore, the forecast of sales growth rate is the foundation for forecasting Myer. Based on the previous annual reports from 2007 to 2011, Myer’s sales are not optimistic and the average growth rate is negative 2.89%. The decline of both global economy and purchase power of consumers in Australia will lead to the depression of whole industry and unsatisfied performance of Myer in 2012. Additionally, growth of 20% online shopping shows that more and more consumers prefer to purchase online instead of in the shops . Therefore, negative 1% of sales growth rate for Myer can be assumed in 2012. However, Australia would have a weakening global economy impact and have strong national growth in the future . According to IMF, Australian economy growth rate is expected up to 3.5% in 2013 . Considering the previous performance of Myer, 2% of growth rate can be assumed for 2013. After that, 3% of growth rate can be assumed from 2014 to 2017 and the sales would approximately even to 2007. (See below chart)

Previous years
'00020072008200920102011Average rate
Sales3,002,3532,940,3312,798,9162,825,0342,666,803 
sales growth -2.07%-4.81%0.93%-5.60%-2.89%

Future years
 2011201220132014201520162017
Sales growth -1%2%3%3%3%3%
2.Forecast ATO & calculate NOA
According to the past five years’ data, Myer’s Assets Turnover ratio (ATO) declined slowly following the decrease of sales, apart from 2011 down quickly. Therefore, the average rate 2.05 can be used to predict the future years. (See below chart)  20072008200920102011Average rate

ATO2.02 2.282.152.001.772.05

3.Forecast PM & calculate NOPAT
Profit Margin (PM) is another important indicator in forecasting Myer’s performance. This indicator relates between the sales and cost of goods sold and operating costs. The competition in retail industry is stronger than before. That means through increasing sales or decrease COS to increase PM is more difficult. The change of PM fluctuated markedly in the last five years. In order to fairly predict the data, the average of 7.5% can be used as the future PM growth rate. (See below chart)  20072008200920102011Average rate

profit margin4.7%13.4%4.9%7.8%6.6%7.5%

4.Forecast net dividend payout
Dividend payout is a significant indicator to influence share price. Therefore, estimating this rate means the people can determine Myer whether focuses on benefiting shareholders and beautifies share price or not. According to the past 5 years, only 3 years Myer paid dividends. After calculation, the average rate based on 3 years is 45% and 5 years is 27%. However, 27% is too low for shareholders if Myer earn more profit base on the forecast. In addition, most of dividends payout is higher than 50%. Therefore, the forecasting dividend payout rate is estimated by 45%. (See below chart)  20072008200920102011Average rate(3yrs)Average rate(5yrs) Dividend0%50%0%28%59%45%27%

5.Forecast cost of debt and debt balance
Basically, cost of debt means the expense of liabilities. Determining the cost of debt is as well as setting up the financial structure such as how much debt Myer plan to borrow. According to the previous data, Myer repaid a huge amount of debt in 2010 and led to the cost up and net debt down. However, the debt did not rise up again and kept the similar level as 2010. Therefore, concerning about the cost of debt, the average of 10.75% seems more reasonable to predict the future....
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