Premier Investments (ASX:PMV): A High-ROCE Retail Play with Strategic Clarity and Undervaluation Potential

In the ever-shifting landscape of retail, finding a company that combines operational discipline with strategic reinvention is rare. Premier Investments (ASX:PMV) fits the bill. With a Return on Capital Employed (ROCE) of 29% in 2023—triple the 15% industry average—and a capital efficiency trajectory that's defied gravity, this Australian retail giant is positioning itself as a compelling long-term play. Let's break down why PMV could be a multi-bagger for investors willing to look beyond short-term volatility.

Capital Efficiency: A Compounding Machine

Premier's ROCE has surged 177% over five years, even as the company reduced its capital employed by 40%. That's not just efficiency—it's alchemy. By generating 29 cents in pre-tax earnings for every dollar of capital deployed, PMV is leveraging its assets and liabilities with surgical precision. The key? A strategic shift toward short-term liabilities, now accounting for 59% of total assets. While this raises eyebrows, it's a calculated move: using supplier financing and working capital to fund growth without diluting equity.

But here's the catch: Some reports cite a quarterly ROCE of 7.44% in Q2 2025. The discrepancy? Methodology. The 29% figure is annualized (TTM), while the 7.44% is a quarterly NOPAT-to-invested-capital ratio. Annualized metrics smooth out short-term noise, and Premier's long-term trend remains bullish. The company's Return on Equity (ROE) of 30.02% further cements its ability to reward shareholders.

Strategic Ownership Alignment: Focusing on the Core

Premier's recent in-specie distribution of Myer Holdings shares to shareholders is a masterstroke. By separating its ownership in Myer from its core retail brands (Smiggle, Jay Jays, Peter Alexander), the company is sharpening its focus. This tax-efficient move simplifies the capital structure and aligns management with shareholder interests. The strategic combination of Premier's apparel brands with Myer's retail operations also hints at untapped synergies.

Leadership changes in Premier Retail, including the appointment of an interim CEO, signal a restructuring in motion. This isn't just about cost-cutting—it's about reorienting the business for a post-pandemic retail environment where agility and brand loyalty are king.

Undervaluation in a Stabilizing Sector

Premier's valuation metrics scream “buy.” At a trailing P/E of 14.65 and a P/B of 4.39, the stock trades at a discount to its 10-year P/E average of 20.55. Analysts suggest it's undervalued by up to 21%, with a robust balance sheet (debt-to-equity of 0.33) and free cash flow of AU$321.70 million over the last 12 months.

The stock's 52-week decline of 38% has created a buying opportunity. While the beta of 0.44 suggests lower volatility, the market's skepticism about retail's future is overblown. Premier's core brands are thriving in a sector that's stabilizing, with e-commerce and omnichannel strategies gaining traction.

Risks to Watch

Premier's reliance on short-term liabilities (59% of total assets) is a double-edged sword. If refinancing becomes costly or supply chains tighten, liquidity could strain. Additionally, the upcoming earnings report on September 24, 2025, will be a litmus test for whether the company can maintain its ROCE momentum.

The Bottom Line

Premier Investments is a textbook example of a company that's mastered capital efficiency, realigned its strategic focus, and is trading at a discount to its intrinsic value. For investors with a 3–5 year horizon, this is a no-brainer. Buy it on dips, hold it through the noise, and watch as the compounding magic of 29% ROCE and a streamlined capital structure take hold.

Final Call: In a retail sector where most players are struggling to adapt, Premier Investments is rewriting the rules. With its capital efficiency, strategic clarity, and undervaluation, this is a stock that could deliver multi-bagger returns for those who act now.