Warehouse jumped 1.8 per cent to $NZ3.32, its highest since March 10 on Tuesday. That’s a discount to the stock’s 12-month price target of $NZ3.64, Craigs Investment Partners analyst Chris Byrne said in an April 17 note where he upgraded his recommendation from “hold”.
Warehouse is investing in its core “red shed” stores and has bought 11 businesses in the past 18 months as part of a plan to grow the non-core side of its business to be as large as the general discount stores.
While investors are questioning when the investment will translate into higher profits, the retailer’s expansion into financial services by buying the Diners Club business last month is a good strategic move, Mr Byrne said.
“Warehouse has announced that it plans to be a leading retail financial services company within five years,” he said.
“We are of the view that this is a good, low-risk strategy given Warehouse’s ability to build a business of scale.”
Warehouse aims to build a finance book worth about $NZ600 million ($A556.56 million) by 2020. Based on the earnings of Fisher & Paykel’s finance business, which was a similar size, Warehouse could build a finance business worth $NZ68m to $NZ90m in that time, Mr Byrne said.