CESC - On the road – bullish outlook in retail:: Macquarie Research,

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CESC Limited
On the road – bullish outlook in retail
Event
 We took senior management from CESC and Spencer’s Retail to Singapore
for investor meetings. Spencer’s has already shown evidence of a turnaround,
and, using management’s forecasts, we estimate a 19% CAGR in CESC’s
consolidated EPS over the next three years. With the stock trading at 12x
FY12 consolidated NPAT, we highlight the value proposition of this mid-cap.
Impact
 Material upside to our earnings: Management forecasts that losses in
Spencer’s will fall from Rs1.5bn in FY11 to Rs1.1bn in FY12, Rs0.7bn in FY13
and zero in FY14. CESC expects property to add Rs0.25bn NPAT from mid-
FY13. This implies material upside to our earnings forecasts as shown below.
 Spencer’s margin improvement to drive value: While we think there is
unlikely to be a single, short-sighted event to re-rate CESC higher, we expect
ongoing margin improvement in Spencer’s over the next 12 months to
improve market sentiment, with the current share price appearing to factor-in
ongoing losses, despite evidence of improvement over the past 18 months.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs384.00 based on a Sum of Parts methodology.
 Catalyst: Retail margin improvement through FY12.
Action and recommendation
 Maintain Outperform.