Real Estate & Retail

BEHIND THE NEWS Marsh shares stage rally, despite firm's challenges:

August 1, 2005

Marsh Supermarkets Inc. might be a great place to shop, but it's been a long time since the embattled Indianapolis grocer has been a great place for investors to park their money.

That's why the recent runup of Marsh shares is raising eyebrows in the investment community. Both the company's Class A and Class B shares are up more than 25 percent since early June, and better than 20 percent for the year.

What's driving the increase? In part, probably takeover speculation, financial observers say, though there's no market buzz a deal is afoot and trading volumes haven't been unusually high.

Investors may view a sale as "their salvation," a longtime Indianapolis market observer said. "I think that is what you're seeing."

Indeed, there's little in Marsh's recent performance to spawn the rally in the shares, said Mitchell Corwin, a stock analyst following the company for Chicago-based Morningstar Inc.

"If you look at the company itself, it is resourceconstrained," he said. "They have a lot of debt, the operations do not generate enough cash to really invest in their store base, which is pretty old. The kind of spiral they are in can't go on forever."

And counting on a white knight to save the day could be risky. Potential suitors might be scarce, Corwin said, given the brutal competition Marsh faces from Kroger, Meijer, Super Target and Wal-Mart. Over the past five years, Corwin said, Wal-Mart has grown its grocery market share here from 2 percent to 26 percent.

Marsh officials did not respond to requests for comment on the recent stock performance or on whether they plan to keep the chain independent.

The company's shares began rising in the weeks after it announced June 2 that profit in the fiscal year ending in April totaled $4.16 million on revenue of $1.75 billion. That compares with profit of $3 million on revenue of $1.65 billion a year earlier.

In both years, the company, which operates 117 groceries and 161 Village Pantry convenience stories, bolstered results by selling off real estate. It pocketed $3.8 million in real estate gains in the latest fiscal year, and $3 million the year before.

Both Marsh's Class A and Class B shares hit 52-week highs in July before staging a small retreat. Class A shares were trading late last week for $13.99, and Class B shares were fetching $15.17.

Helping support the current price of both classes of shares, market watchers say, is Marsh's 13-cents-a-share quarterly dividend, a hefty sum for the company to dole out considering its thin profits. Both classes have an annual dividend yield topping 3.4 percent.

But investors who take comfort in the dividend may be in for a jolt. Paying that dividend for four quarters eats up $4.11 million in cash-roughly equivalent to the profit the company reported in its latest fiscal year.

Morningstar's Corwin calls the dividend unsustainable. Asked via e-mail whether the dividend was secure, company officials did not respond.

Standouts among state stocks

More than a half dozen other Hoosier issues also have appreciated more than 20 percent this year, bucking the trend in an otherwise sleepy span for stocks. Most of the major indexes are roughly even year to date.

Leading the way is the Evansvillebased retailer Shoe Carnival Inc., whose shares have risen 90 percent on the strength of strong sales and higher-thanexpected profit.

Another standout is Indianapolis-based First Indiana Corp., which has rekindled investor enthusiasm since Robert Warrington came aboard last year as president. First Indiana shares on July 28 hit a 52-week high of $32.16 and now are up 42 percent for the year.

Retaining its spot on the list of winners is Indianapolis-based mall owner Simon Property Group, which has tacked on 22 percent. That's on top of a 182-percent advance in the five years ending in December.

A sweet Bindley spinoff

Back in 1997, Indianapolis-based drug wholesaler Bindley Western Industries Inc. attracted little notice when it launched an initial public offering for its small, Florida-based specialty pharmaceuticals division, Priority Healthcare Corp., then spun off the remainder to shareholders.

But those shareholders, many of them in Indianapolis, sure have noticed as the stock chugged higher over the years. And under a deal announced late last month, St. Louis-based Express Scripts Inc. is buying the Florida company for $1.3 billion in cash. The pershare price of $28 is nearly a 500-percent premium to the IPO price.

"There's been a lot of value creation for shareholders," said Bill Bindley, who is chairman of Priority's board and was CEO of Bindley Western before its $3.1 billion sale to Ohio-based Cardinal Health Inc. in 2001. "There are a lot of very happy Priority shareholders."

Count Bindley among them. As Priority's largest shareholder, with 6 million shares, he'll reap more than $168 million from the sale, regulatory filings show.
Source: XMLAr00400.xml
ADVERTISEMENT

Recent Articles by Greg Andrews

Comments powered by Disqus