Harvey Norman Holdings Limited

HVN Details

Stock tumbled on dividend cut despite solid results: Harvey Norman Holdings Limited (ASX: HVN) posted 28.8% year on year (yoy) growth in net profit after tax at $448.9 million. Profit before tax increased by 29.6% to $639.8 million; while excluding net property revaluation increments, it grew 19.4% to $531.8 million. Further, a $17.7 million (24.3% up) increase in the company-operated retail segment was reported and this was led by strong improvements in the results of retail operations in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia. Similarly, a $36.4 million (13.6% up) increase in the profitability of the franchising operations segment was reported. Net property revaluation increments of $108.0 million delivered an increase of $59.7 million over the net property revaluation increment of $48.4 million recognised in the previous year.


Financial performance; (Source: Company reports)
 
In Australia, franchisee headline aggregated sales revenue has increased by 5.4% to $5.6 billion compared to the 2016 financial year. This solid growth in franchisee sales reflecting retail spending remains above decade averages, particularly in NSW and Victoria, underpinned by strong housing sector activity, lower levels in unemployment, a net increase in overseas migration, and the wealth flow-on effect from higher home prices. The strong growth in franchisee sales contributed to a 13.6% increase in the result from the franchising operations segment to $304.5 million from $268.2 million in the previous year.

The stock has tumbled 7.5% on 31 August 2017, as the company reduced its dividend payment to 26 cents for FY17 vs 30.0 cents in FY16.  Given the intensifying competition in the sector at the back of entry of retail giant Amazon, we maintain an “Expensive” recommendation on the stock at the current price of $ 4.08

JB Hi-Fi Limited

JBH Details

Rising headwinds due to competition: JB Hi-Fi Limited (ASX: JBH) stock dropped nearly 2% on 31 August 2017 in line with peers post the Harvey Norman Holdings results. There have been updates/ changes in substantial holdings from Challenger Ltd and UBS group. The company had reported 36.5% yoy growth in FY17 underlying profit at $207.7 million (FY16: $152.2 million) on $5.6 billion of sales (FY16: $3.95 billion) for the full year ended 30 June 2017. Total sales grew by 42.3% yoy while group EBIT was up 38.5% on the pcp to $306.3 million. However, Australian sales witnessed subdued growth at 10.9% to $4.15 billion, with comparable sales up 8.6%, led by the Communications, Audio, Cameras, Accessories, Computers and Home Appliance categories. In FY17, online sales grew 38.4% to $158.9 million or 3.8% of total sales, reflecting continuous improvement across many aspects of the business’s digital assets. Given the increasing costs to sustain the revenue and rising headwinds in the sector, we give an “Expensive” recommendation on the stock at the current price of $ 23.13

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