Analysts take wait-and-see approach on possible Myer sale

Asutralian broking houses were this week holding fire on Coles Myer and the possible sale of its iconic Myer store, taking heart in the retailer's reconfirmation yesterday of its profit targets.

One analyst said a sale of Myer's 61 department stores could result in the re-rating of Coles Myer shares.

But analysts agreed that Tuesday's annual sales results came in below expectations which were impacted by the previous year's federal government family grant.

Coles Myer unveiled a 13.3 per cent rise in annual sales to A$36.6 billion yesterday which showed a slowdown in comparable store annual growth.

Along with a possible sale of Myer, Coles Myer said it would sell its loss making Megamart stores.

UBS said it was torn between the short-term risk to discretionary retail and the potential re-rating from a sale of Myer, which it estimates has a book value of A$600 ($662.47) million.

UBS believes that around 20 Myer stores are making a loss which could be due to wrong locations, high rent or too large a footprint.

"The top 20 Myer stores are probably highly desirable for any owner but the question is, can these be split out?" UBS asked.

Coles Myer shares slipped 12 cents to A$9.63 yesterday.

"While the sales result showed a slowdown in growth, profitability remains strong," Citigroup said.

GoldmanSachs JBWere said the restating of Coles Myer's profit targets for 2005 and 2006 financial years was a positive and will be well received by the market.

International rating agency Standard & Poor's said Coles Myer's intention to divest Megamart and to review its options with Myer had no immediate impact on the company's ratings or outlook.

- AAP