Coles Myer (CML) Stock Recommendation

UBS has a Neutral 2 rating for the Coles Myer (CML) stock with a share price target of $11. The broker has recognised the latest rise in the value of the share price with recent press conjecture of a possible takeover. The broker notes that if any bidder is to emerge, "it is most likely to be a private equity player because the Australian market is consolidated, mature and relatively small." In UBS' eyes, the company may be an appealing target because CML is "under-geared, has operational upside and cost-out potential." The broker notes that "currently at FY07E PE of 20.6x and EV/EBITDA of 10.6x, would imply a CML share price of $13.40-14.60. We estimate CML could be geared with approximately $8.6bn of debt (vs $1.35bn currently), implying a fixed coverage ratio of 1.8x and net debt to EBITDA of 4.6x. This debt to EBITDA ratio is equivalent to the ratio that Newbridge has geared Myer to."

Meanwhile, Citigroup have raised their share price target for Coles Myer (CML) to $14.00 and have upgraded their rating to Hold, Medium risk. They believe that any takeover will need to be priced between $14.10 and $15.70 per share. The broker notes that "the opportunities available to an acquirer are conducive to a bid from a private equity firm. To justify a takeover, significant cost reductions and working capital improvements need to be made and high debt levels are likely to be used to generate a high return on equity."

Coles Myer Limited is listed on the Australian Stock Exchange (ASX) under stock code CML. You can view their investor website here. Coles Myer is primarily a retailer and was listed on the ASX on 24 September, 1929. Find out the meaning of the recommendations in this primer. Have a look at previous Coles Myer (CML) broker recommendations. Browse for other broker recommendations. Check your charts and good luck with your share trading!