Michael Hill International’s plans to close the remaining six stores of its Emma & Roe chain, allowing the jewellery maker and retailer to focus on its core namesake business, are “welcome” and “sensible,” First NZ Capital research analyst Andrew Steele said in a note.
Steele will retain an 'outperform' rating on the stock and a target price of $1.45, he said in a note on Monday.
Brisbane-based Michael Hill announced the Emma & Roe exit last week. The move, a change in direction from previous plans announced in March, follows its decision earlier this year to conclude its US operations.
“We welcome the closure of the remaining Emma & Roe stores,” Steele wrote in the note. “While six stores were largely immaterial to group earnings, we were concerned that this small portfolio could still act as a distraction away from the core Michael Hill business. As such, we view the strategic prioritisation of the core business as sensible.”
The additional costs associated with the closure of the six remaining Emma & Roe stores “are disappointing,” Steele said. However, “without the material earnings drag from the loss-making Emma & Roe and US businesses, we expect greater market focus on the core Australia, New Zealand and Canadian businesses.”
Shares of the dual-listed company traded 1 percent higher at $1.05 as of 11.30am in Auckland.
“Despite announcing the exit of its two loss-making businesses, [the stock] continues to trade at trough valuation multiples,” Steel said. “We retain outperform on attractive valuation.”