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Blog

Consumer sector: Stocktake

Josephine (Jo) Little

  • In line with our last sector report (Feels tougher than usual), our feedback suggests a difficult retail trading environment throughout December which, aside from Boxing Day sales, seems to have persisted into January.
  • The challenging Xmas period is partially due to a pull forward of demand into November with the rise of online sales events such as Click Frenzy/Black Friday (lower margin) and softening consumer spending more broadly (due to well publicised causes and per our last sector report).
  • We think margin and inventory level risk is higher this year than we have seen for some time. Early 2HFY19 trading updates are also likely to be soft, in part due to strong comparables being cycled across the board.

How we see/play the 1H19 results season

We see earnings/outlook risk (downside) in

  • Motorcycle Holdings (MTO)
  • National Tyre and Wheel Limited (NTD)
  • Bapcor (BAP) (although consensus now at the lower end of guidance range)
  • Automotive Holdings Group (AHG).

Heavily de-rated stocks that could bounce on just hitting consensus

  • Adairs (ADH) (although watching 2H FX impact)
  • Super Retail Group (SUL)
  • Redhill Education (RDH)

Specific situations

  • Lovisa (LOV) – we expect SSS to decelerate further providing clear disappointment risk. However, a solid GM may bolster earnings and potential articulation of the performance and rollout size of offshore trial markets could excite.
  • Baby Bunting (BBN) – should be well placed to exceed top-line consensus forecasts (cycling weakest comparable of the year + market share grab), although a conscious step up in opex will limit the flow through to earnings.
  • Accent Group (AX1 – will likely produce a stand-out result in the sector with EBITDA set to increase by 15-20%. However, this growth rate is not sustainable in our view, with the major tailwinds driving this growth to be cycled from the 2H.

Recommendation

Taking a more medium- to long-term view, our preferred consumer stocks include: LovisaBaby Bunting and Noni B Limited (NBL).

More information

Morgans clients can access my full research note: Consumer sector – Stocktake. Alternatively, contact your Morgans adviser or nearest Morgans office for a copy.

Disclaimer(s): Analyst may own shares in companies mentioned. The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.