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Pacific Brands Upgrades Guidance, Shares Soar

Pacific Brands Upgrades Guidance, Shares Soar
Jul 02, 2015 By Simon Herrmann

Pacific Brands Ltd (ASX:PBG) has provided shareholders with a reason to cheer as it upgraded its earnings guidance for FY15.

Shares of Pacific Brands have soared this morning on the back of the positive announcement. At 11:30am (AEST) PBG was trading at 43 cent which is an increase of ~30% compared to yesterday’s closing price of 32.5 cents.

The company informed the ASX that it expects EBIT before significant items to be in the range of $63m to $65m which is higher than previously estimated. During the interim results presentation in February, PBG expected fairly flat sales for the second half of the financial year, however the continued strong performance of Bonds and Sheridan retail have contributed to a strong H2. Initially Pacific brands expected EBIT to be between $57.4m and $63m. The company achieved sales growth of 5.3% during FY15 compared to pcp. As a result net debt is expected to be cash positive.

Whilst the company still experiences challenges in the discount department store channel, favourable trading conditions in its other departments resulted in the overall pleasing performance. Shareholders of this iconic Australian brand haven’t had much to cheer in the past few years. Before the GFC the stock hit a high of around $3.30 which was never been reached again. Even with today’s gains, PBG has declined around 20% in the past 12 months as it continues to trade in a long-term bearish channel.

Trading activity leading up to the full year results was cautious as investors may have feared another earnings downgrade. Today‘s share price gain is exponentially higher than PGB’s earning upgrades, which shows that the market expected weaker earnings to a certain degree. Last year PBG announced a net loss of $224.5m despite single digit revenue growth.

What’s the outlook?

Going forward PBG investors may find technical support as the market will try to digest the announcement and reflect on the restored sales momentum. PBG has not been on Wise-owl’s watchlist for a while and will most likely not be found there even after the announcement. Trading environment over the next few months will most likely remain challenging and unless management can come up with a creative way to fully restore confidence, we expect the share price to remain volatile.

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Simon Herrmann Author: Simon Herrmann Jul 02, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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