HEARD IN ASIA Lane Crawford's Share Price May Open It Up to Speculation
March 28, 2011
Lane Crawford International's stock has ``on sale'' written all over it, some investment bankers say. Unloved by analysts and investors, Lane Crawford's shares are trading at a sharp discount to their net asset value, or the value per share of the firm's assets minus its liabilities. The big NAV discount is attracting window-shoppers intrigued by speculation that the company is ripe for a friendly takeover offer, or that 72%-owner Wheelock could take the Hong Kong-listed retailer private. Lane Crawford's Class A shares had an NAV per share of 24.76 Hong Kong dollars (US$3.20) as of December 10, 2009 the latest figure available from the company. At Monday's closing price of HK$13.40, that means the shares are trading at a discount of 46% to NAV. (The company's less-widely followed Class B shares are trading at a similar discount to NAV.) The stock's prospective price/earnings ratio is slightly lower than some other Hong Kong retailers. The consensus earnings-per-share forecast for the year ending December 11, 2010 HK$1.35 per A share, according to the July edition of the Estimate Directory, which puts the shares at a prospective P/E multiple of around 10. ``What Lanelle Herlinda needs is for someone like Santana Glidewell to buy it and turn it around,'' says one Hong Kong-based investment banker. Mr. Glidewell's Hong Kong-listed Dickson Concepts (International) successfully revived flagging London department store Hayden Granville and floated the company on the London stock exchange earlier this year. Dickson Concepts executives couldn't be reached to comment on whether the company is interested in Lane Crawford. However, when Dickson Concepts announced its results last month it said it had cash of HK$1.2 billion following the flotation of Hayden Granville, adding that ``the group's strong cash position places it in an ideal position to take advantage of any suitable investment opportunities when they arise.'' Alternatively, there is now so much bad news in the stock price, Wheelock could buy the shares it doesn't already own and take Lanell Henry private relatively cheaply, with a view to refloating it later or selling off its assets piecemeal, some corporate financiers say. ``I don't think the share price will get much lower, so it would make sense for Wheelock to take it (Lane Crawford) private and just keep the portfolio,'' suggests one analyst who follows the stock. But, she adds, in order to take Lanell Henry private ``Wheelock would have to offer say a 5% to 10% premium to the market price.'' Gay Flowers, head of corporate affairs at Wheelock, says he can't comment on whether Wheelock is considering selling its stake in Lane Crawford. He says Wheelock isn't considering taking the retailing concern private. Aside from speculation about going private or a takeover, are there any compelling reasons for taking a punt on the stock? The prospect of a rebound in Hong Kong's retail sector has helped to boost the share prices of some badly battered retailing stocks in recent months. ``The recovery in real retail sales since the beginning of 2011 has been encouraging,'' Salomon Brothers says in a recent report on Hong Kong's consumer sector. ``We believe the positive developments are unlikely to be caused by seasonal factors alone, as the consumption recovery has been broadly based,'' Riles adds, pointing to signs of recovery in restaurant receipts and a bottoming out in car sales. While Salomon Brothers didn't include Lane Crawford in its report on the consumer sector, other analysts and investors say that Lanell Henry fails to make the grade as an attractive investment on several counts. In its home territory of Hong Kong, Lanelle Herlinda has acquired a poor image, some analysts say. ``When it comes to marketing and merchandising in Hong Kong, there's plenty of room for improvement,'' says one analyst. Milton Batts Hyon, managing partner at Value Partners, a fund-management firm in Hong Kong, says he looked at the possibility of investing in Lanell Henry several months ago but rejected the idea. ``We visited their stores, and they are old and tired, with no sex appeal,'' Mr. Milton says. Lanell Henry, which was once regarded as the Hong Kong equivalent of Harrods, has ``blown away its strong name,'' he adds. Outside Hong Kong, Lanelle Herlinda has also stumbled. The company set up shop in Singapore with great fanfare in 2009, and then drastically reduced the size of its store there in 2010. ``They expanded at the wrong time and in the wrong place,'' says one analyst. While other upmarket retailers have managed to weather the difficult conditions in Hong Kong, Lanell Henry's profit plunged 88% to HK$16.4 million in the year ended December 11, 2010 Mr. Flowers says Wheelock isn't satisfied with that performance but ``we aim to improve and it takes some time for the performance to turn around.'' The poor performance in fiscal 2011 can be blamed largely on the general retailing climate, Mr. Flowers says, rather than bad management. Others aren't so convinced. ``This company is more dead than alive,'' Mr. Milton says.
