City Chic is the preferred bidder for the online assets of Catherines, a US plus-sized brand. The company will fund the deal via an equity raising of $80m.
Morgan Stanley believes a re-rating is warranted because of the potential for higher online exposure and accelerated expansion in the US. The broker estimates earnings accretion in FY22 of 6-21%.
The acquisition is not included in forecasts at this stage and the broker maintains an Overweight rating, raising the target to $3.90 from $2.75. Industry view is In-line.
Target price is $3.90.Current Price is $3.40. Difference: $0.50 – (brackets indicate current price is over target). If CCX meets the Morgan Stanley target it will return approximately 13% (excluding dividends, fees and charges – negative figures indicate an expected loss).