Nervous Markets | Harvey Norman

28 November 2018

Global markets were mixed overnight, with major US market indices little changed as investors await key events later this week. 

Sentiment improved after White House economic adviser Larry Kudlow struck an optimistic tone to the pending meeting between Donald Trump and Xi Jinping.

Investors remain nervous with the US market hovering near lows reached in October, and we reiterate there are a couple of major events to watch this week which investors will be waiting for. Speeches by Federal Reserve Chair Jerome Powell, and a meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on the side-lines of the G20 leaders' meeting are keenly awaited and could go either way in terms of the market reaction.

 

Stock in Focus: Harvey Norman (HVN:AX)

Harvey Norman chairman Gerry Harvey has called his critics "totally friggen mad" at a tense annual meeting yesterday, during which shareholders handed his board a first strike over executive pay. This is the first time there has been back-lash towards the board which has been unchanged since 2007.

 

Mr Harvey's comments overshadowed better than expected sales growth in Australia and overseas in the year to date. Total aggregated sales from franchised stores and company-owned stores overseas rose 2.7% to $2.88 billion and same-store sales were up 3%, helped along by currency tailwinds. In terms of regions, Malaysia was the standout. Ireland also performed strongly, and New Zealand was sound, however Australia was weak.  

We have a negative outlook on Harvey Norman and believe the company is in for a tough period. We believe the Australian and New Zealand housing markets have now peaked – which has been a major source of HVN’s growth over the last decade. The arrival of Amazon and competition intensifying from JB Hi fi and Kogan, and at the same time a weakening AUD (which will lead to higher cost of goods) will result in lower sales revenue and weaker margins impacting profits going forward in their core markets, in our view.

We currently have a SELL recommendation on Harvey Norman.

 

Australia & New Zealand Market Movers

The Australian share market rallied on Tuesday (ASX 200 index +1.00%) on the strength of the finance sector, as the market recorded its biggest percentage gain this month amid increased global optimism. The Tech sector was the standout following leads from Wall Street peers. Coles Group led the market losses on Tuesday after another major broker initiated research coverage on the stock with a "sell" rating. It said while Coles was a good business, there were numerous near-term headwinds.

 

The New Zealand market was in slight positive territory yesterday (NZX 50 index +0.13%). In stock news, Arvida Group rose after reporting a 45% increase in first-half underlying earnings. The retirement village operator said the result was boosted by a strong occupancy rate and buoyed by good resale margins. Green Cross Health was unchanged after reporting a 7.1% fall in first-half profit as the government's pay equity settlement for aged and homecare workers didn't fully fund the firm's increased cost.

 

3 Things Markets Will be Watching this Week

1.              Trade relations between China and the US with the G20 summit talks at the end of the week.

2.              US Inflation and GDP data is published late in the week, with Fed Chair Jerome Powell also set to make a speech.

3.              The Reserve Bank of NZ releases its financial stability report on Wednesday.

 

Have a Great Day

Global markets were mixed overnight, with major US market indices little changed as investors await key events later this week. 

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