Harvey Norman retail is the best way to ride Australia's housing boom, claims UBS

by Madeleine Heffernan
Source: The Age Business (link)

Surging sales of household goods such as furniture and appliances help make Harvey Norman the best way for investors in retail stocks to tap into the country's booming housing market, UBS says.
"Against the backdrop of rising house prices and approvals, household goods categories continue to outperform," the bank said.

"Within the space we believe Harvey Norman offers the best listed exposure with further upside via successful execution of the labour and supply-chain efficiency programs currently being undertaken."

The comments come after a better-than-expected 0.7 per cent nationwide rise in monthly retail sales, taking sales above $24 billion in February. This followed a 0.5 per cent rise in January and 0.1 per cent increase in December 2014.

Year on year, the rise was 4 per cent, with the electronics (up 13 per cent), households goods (9 per cent), hardware (7 per cent) and furniture (6 per cent) categories experiencing the highest rise in retail sales.

While supermarket sales picked up 4 per cent year on year, they were below the 12-month run rate of 6 per cent, UBS said.

"We remain concerned about the outlook for 2015 as ... price competition accelerates.

"The majors (Coles and Woolworths) remain best placed to win share from the smaller retailers (IGA, supplied by Metcash), albeit the rate of gains slowed in February: majors' sales rose 4.4 per cent (January up 3.5 per cent) versus smaller grocers up 2.9 per cent (January minus 1.1 per cent).

"We continue to favour [Coles-owner] Wesfarmers in the space and have 'sell' ratings on Metcash (independents) and Woolworths (industry-leading margins are unsustainable)."

Tuesday's Bureau of Statistics figures showed department stores struggled and strong eating-out trends had continued, up 5.2 per cent year on year.

Previous official figures showed accommodation and food services had the highest business entry rate in the 2013-14 year, and that the food and beverages sector employed 6.2 per cent of the workforce.  

UBS economists Scott Haslem and George Tharenou said retail sales gains in 2015 suggested the shopper could "again add solidly to first-quarter growth, led by positive trends in food, household goods and eating out".

They said the February and January figures also supported their forecast for retail sales to return to 5-6 per cent annual growth.