Harvey Norman Holdings Limited (ASX: HVN)
HVN operates as a retailer offering computer and electrical products, furniture, computerized communications, and several others. Some of its brands include Harvey Norman, Domayne, and Joyce Mayne.
H1FY22 Financial Insights: HVN posted bleak H1FY22 results. Closure of retail stores and supply chain disruptions caused total franchisee sales to decline by 8.7% to $3.433 billion. Australian store sales deteriorated significantly by 16.5% YoY, followed by New Zealand with a 15% drop. Its EBITDA plunged 3.3% to $754.41 million due to erosion in the topline and rent waivers from franchisees. Its property segment witnessed an astonishing 81.3% growth in PBT mainly due to a $93.06 million increase in property revaluations. However, overall PBT declined 4.9% YoY to $612.24 million. Excluding property revaluation gains, its PBT tumbled 20.5% to $482.87 million in H1FY22. The company turned net debt position of $61.5 million as of December 31, 2020, as compared to net cash position as of $21.75 million in the prior year.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of HVN delivered three months returns of +~7.98%. The stock is trading closer to its 52-week high price of $6.090. The stock has been valued using the P/E-based illustrative relative valuation method and arrived at a target price with a correction of single-digit (in % terms). The company might trade at a slight premium than its peers, considering the diversified operations with a significant scale. For this purpose of valuation, a few peers like JB Hi-Fi Ltd. (ASX: JBH), Accent Group Ltd. (ASX: AX1), Nick Scali Ltd. (ASX: NCK), and others have been considered. Considering the recent rally in share price, deterioration in franchisee revenue, dip in profitability, increase in debt levels, valuation indicating downside, and key associated business risks, we recommend investors to book profit and give a ‘Sell’ recommendation on the stock at the current market price of $5.560 as of 14 March 2022, 02:12 PM (GMT+10), Sydney, Eastern Australia.
Daily Technical Chart – HVN
Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.
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