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Oct 27

You have to love Investment Banks…NOT

Apparently UBS (Investment Bank) says “Myer Float reasonable priced”…see Business Spectator article here.

A few weeks ago I was at a presentation by UBS Global Asset Management’s head of Australian Equities, Simon Shields, and he didn’t quite say the same thing. In fact he provided some fairly simple advice on floats and in particular the Myer float…of which he was not going to have any part of.

Basically, he said that private equity driven floats, like Myer, are typically set up for failure. The balance sheets and profit and loss statements are stripped bare so that the numbers look great when in fact its a lot of smoke and mirrors. Apparently, Myer’s current owner sold a massive portfolio of property and whilst the float may appear to be good value compared to when it was listed before its missing significant assets which doesn’t quite make it an apples and apples comparison. As for the P and L, well I don’t know if anyone’s noticed but Myer is having non-stop sales which boosts short term revenue but invariably creates long term brand damage; and they are operating with a very lean number of staff…to rescue this situation requires Myer to spend more money and thereby threaten profits. The final comment (I recall) from Shields was that the marketing of the float was largely to the Myer One members who, with all due respect, could not be regarded as sophisticated investors so evaluating the appropriate price of the shares might be a little difficult for this group. Bottom line from Shields….avoid floats from Private Equity and accept floats from governments.

Government do the compelte opposite to private equity…they are typically operating companies with too many staff, paying too much for things, thereby providing enormous growth opportunities. Many floats from government are typically monopolies so this also produces some significant advantages.

Anyway, I’m sure there are no surprises that the UBS Investment Bank have a differing opinion to its funds management arm.

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