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Mid-Cap

Three Retail Stocks to Buy - Dick Smith Holdings + Super Retail Group + Woolworths

October 25, 2015 | Team Kalkine
Three Retail Stocks to Buy - Dick Smith Holdings + Super Retail Group + Woolworths

Dick Smith Holdings Ltd



Outstanding Dividend Yield: Dick Smith Holdings Ltd (ASX: DSH) shares are relatively trading at a very cheaper P/E of 8.13x as compared to its retail peers as the stock plunged over 38.97% (as of Oct 23, 2015) in the last three months, with the group delivering a lower than projected fiscal year of 2015 performance. On the other hand, the group continued to expand its consumer electronics network and opened 14 stores in the second half of 2015 leading to a total of over 393 located stores in Australia & NZ. Meanwhile, Dick Smith targets its network to grow up to 420-430 stores by FY2017, by opening over 15 to 20 new stores annually. The group’s online sales also doubled during FY2015, contributing over 8% of retail sales. Dick Smith private labels penetrated more than 12.5% of sales and accordingly DSH improved product range by 40% to address consumer needs. The group intends to launch small Appliances in over 100 stores during first half of 2016. As regards to the fully paid ordinary shares, the change in interests of substantial holding by National Australia Bank is a good sign.


Store network penetration (Source: Company Reports)

With an outstanding dividend yield of 9.23%, we believe the stock is an attractive investment opportunity to investors seeking for bargain stocks, as the stock is trading at a very cheap P/E of 8.13x. Further, the stock is trading close to its 52-week low price. We also note that the company has given a positive guidance of delivering further profit improvement in FY16. Accordingly, we give a “BUY” recommendation on DSH at the current price of $1.300.


DSH Daily Chart (Source: Thomson Reuters)

Super Retail Group Ltd



Refurbishing existing stores and opening new stores to offset the pressure: Super Retail Group Ltd (ASX: SUL) reported a sales increase by 7.1% yoy to $2.24 billion in fiscal year of 2015, driven by like for like sales improvement across its Auto and Sports division. As per the 16 week year to date performance, total sales growth went up by 5%, 6% and 7% for auto, leisure and sports divisions, respectively. The group’s auto retailing witnessed a like for like revenue increase by 2.5% during the first seven weeks of the fiscal year of 2016, while Leisure Retailing like for like revenues rose by 10% during period, driven by BCF and the clearance program in Ray’s Outdoors. SCA segment intends to open 15 new stores, and make 65 refurbishments, extensions and relocations, while leisure Retailing intends to open 5 new BCF stores and complete 20 BCF refurbishments.  Ray’s shift is also on track having 5 initial pilot stores (with 3 in hand and 2 new stores are scheduled for September and October). SUL intends to begin 8 new stores, close 3 stores and refurbish 12 stores across the Rebel and Amart Sports businesses. There is also news about bringing a camping booking website (YouCamp) and an auto service comparison platform (Fixed Price Car Service). Updates on the “stadium of sports” Rebel Sport concept stores in Sydney are also awaited. It’s hoped the new digital offering will give them an edge in the volatile retail market.-
 
Trading Update (Source: Company Reports)

Meanwhile, Super Retail Group generated a year to date returns of about 30% (as of Oct 23, 2015). The group has a decent dividend yield of 4.17%. We maintain our positive stance on the stock, and reiterate our “BUY” recommendation on SUL at the current price of $9.60.


SUL Daily Chart (Source: Thomson Reuters)

Woolworths Limited



Masters Brand exit: Speculations have been swirling around Woolworths Limited’s (ASX: WOW) exit of its Masters home improvement chain. Master’s reported a loss of Earnings before interest and tax to $245.6 million during fiscal year of 2015, as compared to the loss of $176 million in EBIT in the prior corresponding period. Analysts estimate that if Woolworths exits its struggling Masters brand, than the group would be able to improve cash as well as enhance its focus on its core food-and-liquor segments. This is subject to the joint venture partner Lowe’s decision to exercise an option to sell its $1.1 billion stake. Market believes that the partners may have to further invest about $200 million into the joint venture to keep it up for the next 12 months. WOW is witnessing ongoing business pressure with its sales declining by 0.2% yoy to $60.7 billion while net profit after tax falling by 12.5% yoy to $2.15 billion during the year. To revamp its overall sales growth track, the group launched an Australian Supermarket and invested over $200 million on price during the second half of FY15 leading to a better pricing in the fourth quarter of 2015 as compared to its competitor like Coles. Moreover, WOW intends to achieve significant costs savings of >$500 million through Lean Retail Model, further boosting its balance sheet. The shares of Woolworths fell over 9.2% during this year to date (as of Oct 23, 2015) impacted by growing competition, WOW business pressure, credit ratings decline as well as poor consumer spending.


Home Improvement and Group Performance (Source: Company Reports)

On the other hand, WOW stock recovered over 14.07% in last four weeks partly driven by the group’s better pricing and rumors on its potential Masters brand’s exit. WOW is trading at a cheaper valuation with a P/E of 16.28x, against its competitors like WES (with a P/E of 19.29x). Woolworths also has a decent dividend yield of 5%. We maintain our “BUY” recommendation on WOW at current price of $27.81.


WOW Daily Chart (Source: Thomson Reuters)

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The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

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