As Australia’s leading analysts and fund managers scour the retail market for organization’s that can withstand a recession, or severe downturn UBS’s head of consumer research Shaun Cousins is claiming that 12 months of cost of living pressure is now intensifying.
What he is looking for is recession-proof businesses to withstand a consumer confidence slump, as living costs soar, among the retailers coming onto his radar are the likes of Premier Investments, JB Hi Fi, Harvey Norman and the likes of Wesfarmers whose Bunnings, Officeworks, Kmart and Target are facing weak sales along with the likes of Woolworths owned, Big W.
He has spent more than 20 years covering retail stocks at JP Morgan and now UBS, said the investment bank’s data shows consumers really tightened their belts from April and May, after the Reserve Bank delivered 11 consecutive rate increases from May 2022 to take rates to their highest since April 2012.
According to his latest report reported by the Australian Financial Review he claims, “We believe it’s a combination of cost of living pressures that have existed for almost 12 months and now intensified,” Cousins says. “While we’ve had a strong labour market the support of savings has moderated, and we think all consumers will change the way they spend. We believe the very affluent are unlikely to change much at all, the less affluent will be under greater pressure as they’ve got less buffer to handle rising living costs.”
As a result of concerns low and middle-income earners will cut spending as rents, energy, supermarket shopping, and mortgage costs spiral, in June UBS advised investors to sell shares in a slew of discretionary retailers including Accent Group, Domino’s Pizza, Super Retail and Premier Investments, the group behind Peter Alexander and Dotti.
Morningstar equity research director Johannes Faul is still keen on Harvey Norman despite the problems with their most successful franchise operation Harvey Norman Commercial that saw their last franchisee placed into administration.
He claims that the retailer who is trying to manage stock issues is the cheapest it’s been since the pandemic sell-off, he also rated online retailer Kogan in the CE market.
“There’s opportunities out there [in discretionary retail],” he says. “We think about stocks as investment opportunities for the long term, but what’s happening right now is a cyclical slowdown so that means opportunities might arise when things get oversold.”
Cousins also likes Wesfarmers claiming, “We see the consumer avoiding big-ticket items and trading down to lower priced items, so Kmart is a trade-down winner across a variety of apparel and general merchandise categories that it sells,” he says. “The opportunity in the longer term for Kmart is to get the consumer to shop more frequently and a broader range of categories.”
In the first week of July the ANZ-Roy Morgan Consumer Confidence survey found only 19 per cent of Australians believe their families are better off than this time last year, with just 28 per cent expecting their families to be better off this time next year.
While the four-week average consumer confidence level was the second worst in 30 years, second only to the first four weeks of the COVID-19 pandemic.
The AFR Claims that while traditional retail darlings like JB Hi-FI, Premier Investments and Lovisa have avoided profit warnings, they still been sold down by investors fearful of bad news ahead.
JB Hi Fi stock is trading at $43.41 today up 2.79% during the last 30 days. For the year they are up 8.4%.
Over 5 years investors in JB Hi Fi got a return of $86.39% while investors in Harvey Norman only got 2.8%.
As for the last 12 months Harvey Norman share value is down 9.72%.
