The potential for ongoing strong cash realisation for
-Resilient margins at The Good Guys were key to
-Strong sales recovery across all brands in the second quarter
-Online sales were a key contributor to the result
-Potential upside for dividends and capital management
Brokers have generally raised 12-month target prices for
Management noted that trading was robust across all divisions, driven by strong demand for consumer electronics and home appliances. Online growth again increased by 22.7% in the first half compared to 13.7% in the previous corresponding period (pcp).
The omicron variant is delaying the reversion to normal trading conditions from elevated levels, which has increased upside risk to household goods spending in 2022, according to Credit Suisse.
Even after a strong share price rally in reaction to the update, Morgans believes the stock is inexpensive at current levels. The broker feels the first half performance is indicative of a strong market position, heightened customer demand and good cost control.
The analyst attributes the positive results to unexpectedly resilient margins at The Good Guys, where earnings margins remained elevated in the first half at 8.4% versus 8.7% for the pcp, as gross margins benefited from tight product availability and a positive mix shift.
Meanwhile,
As noted by Credit Suisse, sales revenue recovered strongly in the second quarter across all brands. Arguably the trading update could have been even more positive, according to the analyst, were it not for stock positions that have been very tight across the whole industry. The broker maintains its Outperform rating, lifts its target price to
Other alternatives?
Citi retains a Neutral rating (and
Morgans also alludes to other alternatives and suggests the company should not trade at a premium to retailers with more network expansion opportunity. The business is considered well penetrated across
On the other hand,
Online
As
This demonstrates to the analyst a highly profitable online channel that is in-line with store sales, as compared to many retailers that experience significant margin dilution. This is considered critical, given online penetration will likely continue to rise after a normalisation period in FY23.
Off-market buyback?
Ongoing strong cash realisation suggests to Credit Suisse upside risk for dividends and the potential for capital management.
Citi believes
FNArena's database has six broker rating with four Buy and two Hold ratings, with Macquarie yet to update for
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