Want a business with sales growing on average 30 per cent a year in a fast-growing economy and that targets precisely the rising middle class generating the growth? On that basis, Matahari Department Stores’ refloat in Jakarta should be an easy sell. But the heady asking price highlights something else: emerging markets look relatively cheap, but the best opportunities are not.
Developed markets’ premiums over emerging markets, in terms of forward price-earnings ratios, are at their highest in at least five years at 14 and 11 times respectively, based on MSCI’s global indices. But Matahari is asking between 25 and 28 times 2013 estimates for the up-to-$1.4bn in shares it is offering. That compares with Macy’s and Marks and Spencer trading at 11 times and China’s Golden Eagle Retail at 18 times. In favour of the high multiple is the fact that Indonesia’s consumers are justifiably exciting investors. Real private consumption has been growing at more than 5 per cent and domestic demand is expected to grow by a very healthy about-6 per cent this year. CLSA expects the middle class – those with more than $3,000 a year in disposable income – to make up about 30 per cent of the population by 2016, double 2010 levels. Matahari has a dominant 30 per cent of the department store market. And next to peers such as Robinson Department Store of Thailand at 34 times 2013 earnings, or even countryman Ace Hardware at 30 times, Matahari is not asking the world. Especially since it will be more liquid, courtesy of a two-fifths free-float compared with its peers’ one-third offering.