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Harvey Norman “Not Investible”, Poor Cashflow, Accounts Issues

Following yesterday’s record earnings report and a tumbling share price from a surprising final dividend cut, Harvey Norman stocks have continued to nosedive, as analysts pour through the retailer’s financials, deeming the retailer “not investible”.

The retailer’s share price has continued to fall 2.2% today, following an over 7% downward dive yesterday.

Despite the company’s record $449 million profit yesterday (a 29% increase), analysts as Credit Suisse Hedge Fund Sales Trader, Sujit Dey, has expressed concern over the retailer’s second half conversion which he believes is a “poor” 71%.

Mr Dey states there are other issues in the accounts, as the sales are actually going backwards in second-half 2017 compared to the pcp, by 3%. It is the first time this has been seen since 2013. Revenue from franchisees was flat in second-half 2017 compared to the pcp, notably the worst since 2014. Cash receipts from franchisees also fell a whopping 39% in second-half 2017.

The combination of this caused franchisee fee cash per complex to fall materially.

Mr Dey remarks that the short term situation for Harvey Norman does not look good:

“When you overlay the dividend cut and weaker than expected 4Q17 LFL sales (which have continued into FY18), things aren’t looking good for Harvey Norman in the short-term”.

Analysts are still trying to ascertain whether the company’s poor cashflow is a significant long term issue, noting that the lack of information from the retailer is not sufficient, nor reflective.

“Overall, we don’t have enough information to conclude whether this year’s poor cashflow is a one-off that will reverse in future periods or whether its longer-term issue”, states Mr Dey.

“Until we can get more clarity on this, I don’t think Harvey Norman is investible at the present time. If you want retail exposure, JB Hi-Fi is the best way to play it (at least until Amazon starts trading in Australia)”.

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