-Impact of fires/drought on activity likely to continue into the second half
-Concerns centre on the longer-term impact on regions and tourism
-Stock is not priced for growth, hence little downside risk
While the update is well below most broker expectations, Credit Suisse suspects investors will look through the fire-related impact. Nevertheless, the broker asserts a reflection on the longer-term risk implied by climate change is required. More frequent and extreme events have the potential to impact retail performance.
There remain near-term risks for
The prospect of
The main issue
Moreover, fire-related closures are likely skewed to January, as opposed to December, Morgan Stanley points out, and conditions and demand remain of concern, as is the longer-term impact on regional communities and tourism. There is also the risk of higher promotional intensity after such a challenging period.
BCF, Macpac
BCF and Macpac sustained the majority of the impact and were the main sources of concern for brokers as execution risks remain elevated. BCF had more than 50 stores where sales activity was affected by the bushfires and around 40% of BCF stores have been directly disrupted by the fires and drought in NSW. Like-for-like sales growth for BCF contracted by -0.5% in the first half and Macpac's by -7%.
Management did not provide a trading update for the second half to date but these businesses are expected to remain under pressure. There is also the risk of higher promotional intensity after such a challenging period. The company decided not to pass on FX-related price increases from the winter period at Macpac.
Credit Suisse is surprised by the decision to reduce promotional intensity to mitigate costs rather than increase the retail price. As a consequence, this has reduced clarity in respect of the performance of the Macpac Adventure Hub stores and expansion strategies. Despite this, the stock is not priced for growth and Credit Suisse suspects, therefore, there is not a lot of downside risk.
Positive Aspects
Meanwhile, Supercheap Auto like-for-like sales growth was 2.4% and
The broker believes the stock's -50% discount to the ASX industrials ex financials is excessive.
All up,
Morgans agrees the timing around a recovery in outdoor is uncertain, although prefers to look through these events, highlighting the reasonable valuation. That said, the broker does not believe the February results update will reveal any meaningful reversal of recent top-line trends and now expects an earnings decline of -2.2% in the second half.
FNArena's database has four Buy ratings and two Holds. The consensus target is
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