CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

Is City Chic worth $3.85 per share?

We examine Morgan Stanley’s current view on the omni-channel retailer.

City Chic share price falls on failed Catherines acquisition

Like many listed companies, City Chic (CCX) has traded strongly off the lows it recorded in March – with its share price rising a staggering 339% from its 52-week low.

The stock had continued to move higher more recently – as excitement around the potential acquisition of the assets of US-based, plus-sized fashion brand Catherines – captivated the attention of investors.

To complete that acquisition, in July City Chic raised some $111.1 million in fresh capital – made up of a $80 million placement and a $31.1 million (upsized) share purchase plan (SPP).

The company, at the time noted that it had been 'selected as the Stalking Horse Bidder and signed an asset purchase agreement for the eCommerce assets of Catherines.'

Unfortunately, on Thursday the company announced that it had been outbid as part of the auction process for the assets of Catherines. The winning bid came in at $US$40.8 million, significantly ahead of City Chic's undisclosed bid, its consideration offer of US$16.0 million and well ahead of the company’s estimates of Catherines’ assets fair value.

In response to this News, City's CEO and MD, Phil Ryan said:

'Although it was disappointing not to win the assets at auction, we have a very good understanding of the plus size market and the value of the assets, and we did not want to overpay.'

The market’s response to this news was swift, with the stock being bid as much as 15.6% lower – to an intraday low of $2.85 per share – before recovering some of those losses before the close, finishing out Thursday’s session at $3.17 per share (-6.2%).

The stock continued to face selling pressure on Friday, down another 1.8%, to $3.11 per share, within the first two hours of trade.

Want to trade the ASX-listed stocks – long or short?

Create an IG trading account or log in to your existing account to get started now.

Is City Chic worth $3.85 per share?

Looking at how a number of key analysts responded to this news: Morgan Stanley (MS) described City's unsuccessful bid as 'a surprise', while retaining its Overweight rating on the stock and a $3.85 price target.

Ultimately, the investment bank highlighted some positives from the failed bidding process, including flagging management’s capital discipline, its validation of the value of the plus-size space and noting that the company has a number of organic growth pathways.

On the other hand, it was noted that the failed bid also potentially implies a more difficult mergers & acquisitions landscape, with it also being suggested that ‘Management may have been distracted on this transaction.’

As with MS, Citibank analysts argued that the failed acquisition potentially highlights that competition in the mergers & acquisitions space may be heating up, saying:

‘We incorporate $0.60 per share in our target price for acquisitions, but assume the company will now pay 8x EV/EBITDA, not 4x as we had previously assumed.’

Overall, as a result of this news, Citi downgraded their price target on CCX, from $3.40 to $3.20 per share but retained their Neutral rating.

‘The company trades on a high PE ratio and has had a weaker gross margin result in the past year, which may make future growth more challenging.’

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Act on share opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.