Daily ShareChat: Pumpkin Patch

By Jenny Ruth

Friday 2nd October 2009

Pumpkin Patch's annual result was robust given the conditions with a better-than-expected sales performance particularly in Australia but also in New Zealand, says Goldman Sachs JB Were analyst Buffy Gill.

However, margins in both countries were squeezed by discounting and promotional activity.

The company's British operations remain volatile and while it reported an increased lose in the second-half, an improving leasing environment should cut costs across the portfolio as leases come up for renewal, Gill says. She expects the British operations to break even in 2012.

The US closures have gone to plan and Gill expects a significantly lower $3 million loss in 2010 and break even in 2012.

She is expecting positive earnings momentum and an improvement in news about retailing. At $2.02, Pumpkin Patch was trading at a 12% discount to her $2.30 a share valuation and, on a 12 month forward multiple basis, was at a 4% discount to its New Zealand retail peers and a 30% discount to its Australian peers.

"We note that Pumpkin Patch continues to derive about 50% of its revenue from Australia and therefore is predominantly an Australian retailer."

Gill is forecasting normalised net profit will rise from the $18.5 million reported for the year ended July to $26.2 million in 2010.

BROKER CALL: Goldman Sachs JB Were rate Pumpkin Patch as buy.

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