HVN is very much dependent on the consumer performance in Australia. So, when consumers spend money on households the stock benefits. On this basis, the booming property market does somewhat justify the company’s fundamentals. But the truth is, the stock does not appear cheap anymore as it has been gaining value in recent years. Though the outlook suggests higher income and higher earnings per share, the market is not sure if Australian economy will remain the same to support the outlook.
HVN’s principal activities are integrated retail, franchise, property and digital segment including franchisor; sale of furniture, bedding, computers, communications and consumer electrical products.
HVN succeeded to sail through the global economic uncertainty to post strong first half-year numbers. For the six months ending 31 December 2014, the company posted net profit after tax of $141.98 million, which is an increase of 27.4% over the corresponding quarter of last year. The company posted good results on the back of thriving property market in Australia. Sales for the company lifted 3.2% to $3.09 billion across the globe.
Australian stock market might be seeing sudden upward movement, but investors should not get trapped as the latest result of Westpac-Melbourne Institute sentiment index, which is a measure of consumer confidence, show pessimists are still more than the optimists. Even though, companies like HVN are safe to an extent by such turbulence due to government’s action to safeguard small business, they are not entirely in the safe zone and could suffer a shock.
In addition, there is a rising concern that Australian’s growing housing and property bubble could burst, affecting big cities. This will impact the social, economic and financial scenario of the company. A few months back, two major reports were released covering household indebtedness and the over dependence of consumers on four topmost banks of the country for lending. Reserve Bank of Australia also held a cautious tone over the scenario.
Financial highlights (Source - Company Reports)
Report from Barclays bank’s chief Australian economist Kieran Davis noted the debt in the private sector has grown at an alarming 206% of gross domestic product, which is an increase of 191% before the global financial crisis occurred. On the basis of this ratio, Australia is seen among the top 25% most leveraged countries. Further, in the household debt segment, the country is leading at 130% of GDP. Household debt includes overdrafts, personal loans, credit cards, but largest contribution comes from mortgage debt. If this property bubble bursts, it could create havoc, crashing the stocks like HVN, which are so much dependent.
For HVN, financial liabilities in the year 2014 was more than the financial assets, which again is an alarming situation for the company as investors like stocks with lower exposure. Further, the cash and cash equivalents also declined from last year, weakening the position of the company with a warning that HVN could face difficulties in meeting its liabilities, which outweigh the assets.
Cash & Cash Equivalents (Source: Company Report)
HVN has a high PE ratio at 18.80 compared to sector PE of 15.60, which hints the scrip is in overvalued category. Though the sales and dividend growth for HVN are impressive, but when compared to sector, they pay fairly low. Dividend growth of the company over the past five years is 4.94% compared to sector’s 19.92%, and sales growth of the company over past five years is just 0.99% compared to the sector sales growth rate of 13.25%. EPS growth rate also points to the same conclusion. EPS growth rate for the company is -0.27% compared to sector growth rate of 19.19% over the past five years. ROE, return ROI and ROA are also below the sector numbers.
Sector Highlights (
Source: Reuters)
Share price of HVN is trading near its 52-week high. Over the past one-year, the stock is up over 45% while year to date its up almost 37%. When compared to S&P/ASX over the past six months, HVN has generated quite good returns, but the current valuation is not supporting any major upside in the stock for now.
.png)
(
Source: Thomson Reuters)
HVN posted good results for the six months ended December 31
st 2014, but the company has failed to impress on several parameters such as depleting cash reserve over the year and rising liabilities. Looking at the historical trend, taking recent price spike or good result would be a myopic view as five year trends reveal quite a contrasting side where growth is not as robust as it is seen recently. And not to forget the possibility of the property bubble bursting, which will be catastrophic for a company like HVN.
On the basis on above reasoning, we recommend HVN as
EXPENSIVE at current price of $4.50.
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in: BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376