Myer shares jump on bullish UBS upgrade

Myer Holdings Ltd, the troubled bricks and mortar retailer has seen its share price decline more than 80% in the last decade.

Even so, Myer’s shares jumped as much as 2.20% at the market open today, following reports that banking giant UBS upgraded the retailer from neutral to buy.

Since then, Myer's shares have pulled back somewhat. At the time of writing the retailer’s share price is up just 0.92% as broader market weakness weighs on Australian equities.

Consumer trends in focus

As consumer tastes change and foot traffic wanes, retailers in Australia and across the globe have all struggled.

The threats from online e-commerce players have also increased. Low-priced, online-only Kogan Australia Pty. Limited and the recent launch of Amazon.com Inc (All Sessions) Australia both rank as two key examples in Australia.

Even still, Myer’s share price has performed well in recent times – rising 30% year-to-date – as a new CEO and the potential of a turnaround sparks investor enthusiasm.

UBS seems to broadly agree with this sentiment, having just today put a 12-month price target of A$0.64 on the Australian retailer.

UBS re-rates Myer

The Swiss banking giant centrally believes that the market has understated the positive impact that Myer’s new CEO will have on the company’s bottom-line.

When considering the company’s new turnaround strategy, UBS sees a potential 9-12% rise in Myer’s earnings per share (EPS) between FY19-21 and a slight increase in gross profit margins.

The banking giant also thinks that Myer Holdings Ltd is well-placed to see a positive impact from tax-cuts.

Risks still at hand for Myer shareholders

In considering all this, UBS still believes that the situation is ultimately a black and white one.

Simply put: Myer’s turnaround strategy will either work or it won’t.

In the same way that Amazon radically altered the US retail landscape – sending a number of retailers into bankruptcy or close to it – UBS thinks Myer will either adapt to the new retail landscape, or it won’t.

Indeed, when looking at a range of share price estimates that the Swiss bank has put on the retailer, this everything or nothing perspective becomes clear.

Best case, UBS sees Myer worth as much as A$1.39 per share. Worst case, UBS sees the Australian retailer worth just A$0.16 per share.

That second estimate, though UBS believes the least likely of the two, would imply down-side potential of another 70% for Myer Holdings Ltd shareholders.