Valuation of David Jones Essay

4937 WordsSep 1, 201020 Pages
Myer has relatively higher debt, indicated by all high debt-related ratios while David Jones has a tight policy on working capital. A negative sales growth is foreseeable for David Jones based on the recent report released by the company and the globe economic crisis. But NOPAT margin will not drop as much as sales due to cost management and inventory restructure, approximately 4% in 08/09. After 2009, it is expected that the sales growth to recover and even achieve the highest of 8% due to the company’s strategic plan, with the expansion of new stores and refurbishment of old stores. NOPAT margin is approaching 9% after the recession, due to the success of the four year expansion plan. Despite the concern in their debt status, it is believed that strong cash flow position and improving earnings would decrease debt level to optimum level of 30% in the future. With the expected WACC of 8.9%, the company is valued at 3.18 dollar per share, ranging from $2.89 to $ 3.58 per share depending on the situation. We would recommend a current HOLD position for all potential and existing shareholders .Despite the strong business model of the company and the efficiency in working capital management, the current sluggish economic condition coupled with lack of earnings visibility indicates uncertainty about the future share price. DAVID JONES AND THE RETAIL INDUSTRY RETAIL INDUSTRY The main products in Retail industry are consisting of

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