Daily ShareChat: Pumpkin Patch

By Jenny Ruth

Sunday 8th August 2010

The world has become a more uncertain place in the last few months but the underlying fundamentals relating to Pumpkin Patch are still positive, says Buffy Gill, an analyst at Goldman Sachs JB Were.

The children's clothing company's share price is attractive compared with its depressed peers and it has leverage to an Australian consumer recover and store roll-out, Gill says.

You also get for free any potential future growth options (not incorporated in our valuation) from the new brand roll-out, additional wholesale customers or further store roll-out in the UK/US.

Pumpkin Patch's second-half in Australia has been heavily impacted by the removal of fiscal stimulus which boosted its previous second half. Confidence is also being impacted by uncertainty around resource tax, the upcoming election, rising interest rates and risk of a China slowdown, Gill says. Nevertheless, her firm's economics team still has a positive view on consumption in the year ending July 2011.

Pumpkin Patch's second-half sales in New Zealand probably rebounded but much of this has been achieved at a cost to margins from continued discounting, she says.

Britain and the US are showing improving stability in sales but coming off cyclical lows.

In contrast, exports to its wholesale markets have rebounded in the past few months, implying an end to de-stocking and a recovery in 2011 sales, she says.

Recommendation: Buy.

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