Christopher Niesche: The decline of department store giant Myer

Shares in Myer rocketed more than 20 per cent after it announced a 1.5 cent-a-share dividend last week. Photo / 123RF

Opinion

OPINION:

Long-suffering shareholders in Australian department store Myer received much-needed good news when the company announced it would pay its first dividend in almost five years.

But it's unlikely to ever regain its former glory, when Australia's retail landscape was dominated by department stores, with doormen, grand lobbies and sometimes a pianist playing background music for the shoppers. The company emerging as the retailer recovers from years of sliding earnings and sales will be very different from the big format retailer of its glory days, and a lot smaller.

The 1.5 cent-a-share dividend declared last week out of Myer's modest profit is a sign of management's confidence in the retailer's continued recovery. Investors seemed to share that confidence, with the shares rocketing more than 20 per cent.

It's nearly 13 years since private equity firms Blum Capital and TPG Capital sold the chain to sharemarket investors for A$2.3 billion ($2.4b), taking a profit of A$1.5b. The new Myer is now a shadow of that retail behemoth, with a market capitalisation of just A$420 million – representing a loss of almost A$2b in the company's value over since 2009.

Myer chief executive John King has accepted the heyday of the department store is long past and instead has embraced the new retail landscape to remake the retailer.

In the most recent half, total sales grew 8.5 per cent to A$1.5b. But more significantly, online sales climbed 47.5 per cent to $424m, now comprising almost a third of the retailer's sales.

It is also making solid headway with its Myer One loyalty programme. It has 3.5 million members and is seeing more members come back to make purchases from the retailer.

Profit in the six months is up 55 per cent, which doesn't account for Covid payments received from the Australian government the year before.

However, the profit itself is still tiny – A$32.3m – and demonstrates how far the retailer has to go.

With the share price sitting at 50c, any investor who bought shares for A$4.10 when Myer floated 13 years ago, grimly holding on in the hope of better days, is still a long way underwater. Who knows if they'll ever recoup their money? Many would have lost sleep thinking about alone the opportunity cost of not being invested in better performers in a sharemarket which has doubled over that time.

New investors who haven't owned Myer shares before have the option of looking at the company with a different perspective – as one with improving prospects which might provide a good return.

It has been many years since anyone has been able to say that about Myer.

Will AGL rue rejecting takeover bid?

The board and management of energy company AGL have set themselves a mammoth task.

The company last week rejected a takeover bid that would have delivered shareholders a quick profit and a neat exit from the uncertain electricity generation sector.

It was the second offer in the space of a week after software billionaire Mick Cannon-Brookes and Canada's Brookfield Asset Management increased their bid for the electricity generator by 10 per cent to A$8.25 a share.

AGL chief executive Graeme Hunt argued the consortium's bid of a 15 per cent premium to the preceding one-month average share price was not fair.

He might be right. The premium for control of a company is very slim by takeover standards.

But the question is whether shareholders will do better than the A$8.25 offered by Cannon-Brookes and Brookfield, particularly given how quick the rejection of the offers was.

AGL is lumped with several coal-fired generation plants which account for 10 per cent of Australia's total carbon emissions. They are effectively worthless, as Australia's power generators have demonstrated by walking away from coal plants. Who would buy them?

AGL's solution is to split the company in two later this year. One company will hold AGL's electricity retailing arm, with about 4.5 million customers. The other company will hold the coal-burning power stations and progressively retire them while replacing them with renewable power sources.

Cannon-Brookes and Brookfield also planned to retire the coal plants and said they had A$10b to A$20b set aside to fund it, and were planning to move more quickly than AGL's glacial pace.

With the higher bid rejected and the bidders walking away, it's now up to the AGL management and board to do better. They will have to successfully split the company; find the cash to fund renewable energy build so it can become a renewable energy producer; and run a power retail company which buys power because it doesn't own generation assets.

There are a lot of assumptions and ifs in their plan when compared with the certainty of A$8.25 a share on the table last week.

The pressure is on AGL to deliver.