Sunday, July 6, 2008

Why Did you buy that stock? [Briscoe Group]

A recent addition to my portfolio, Briscoe Group[BGR], like every other listed New Zealand retailer, has had its share price slashed over the last few months because of a stagnant economy and poor sales. Briscoe Group is the operator of 3 store types, Briscoes Homeware, Rebel Sport and upmarket homeware store Urban Loft.

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In this Why Did You Buy that Stock? I have to reveal the compelling reason why I bought was the cheap historic price. Not a singular good reason to buy a stock, any investor will tell you but I cant pass up a distressed good company.

Sure, Briscoe Group has just announced a profit downgrade, one of a number over the last few years, but all retailers are suffering at the moment and the retailing scene in New Zealand will recover. Now really is the time to be buying these marked down retail companies.

The management of BGR have done well to position Bricoes and Rebel Sport in an area of the retail sector in New Zealand where they are clearly the leaders in what the sell. This is a tough ask in a crowded and highly competitive retail environment.

Every time one thinks of buying a towel, cheap frying pan or cheap Chinese wine goblet they usually think of Briscoes first-it is hard to miss their saturation advertising and continuous "sales". The same can be said of quality sports gear from Rebel Sport. They are both well known "category killers".

Rod Duke, CEO and majority owner of the company, has done well to run BGR successfully in such a small market. Given that, the size of the company cant get alot bigger.

Future profit increases will come from cost cutting and an improving economy and Duke has his brands well positioned for profit improvement, with the exception of the struggling Urban Loft, as the macro environment becomes more positive.

One other main attraction for me to buy this stock is the company's low debt and very high cash in the bank. As we all know this allows business to cope when the rain comes and boy is it coming down in cats and dogs now.

Even though I just bought my 3000 BGR shares last week, I would answer the question I always ask in this column in the positive, about whether I would buy more given the opportunity-with a rider in this case.

Given the current whacked out nature of the retail sector, any new purchase of this stock would have to be at a share price of 75c or less. The closing price this last Friday was 91c.

Related Share Investor Reading

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NZ Retailers ring up costs not tills

Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions)Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham
Buy new: $41.51 / Used from: $29.98
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c Share Investor 2008

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