Overview: Harvey Norman Holdings Limited (HVN) is the franchisor and operator for Harvey Norman, Domayne, and Joyce Mayne retail stores in Australia, New Zealand, Slovenia, Ireland, Singapore, and Malaysia. The company has 194 franchised stores in Australia and 86 company-operated stores internationally. The stores offer a diverse range of home, electronic or outdoor appliances. The company also has investments in property, media placements activities and is a provider of consumer finance.
Catalysts: Harvey Norman has recorded average profit growth of 20% over the last four years. While its domestic operations remain robust, overseas revenue experiences strong growth. The annual dividend is forecasted to yield ~5% with 100% franking. The company recently purchased a 40% interest in dairy farm operator Coomboona Holdings Limited which further diversifies Harvey Norman’s investment portfolio.
Hurdles: Harvey Norman’s sales revenue is exposed to retail conditions both domestically and overseas and may be subject to falling consumer confidence. The company’s commercial property portfolio is exposed to the non-residential property market and any downturn in the sector may adversely impact valuations.
Investment View: Harvey Norman provides profitable exposure to the retail sector. We are attracted to the company’s growth trajectory, diversified industry exposure, and attractive dividend yield. The commercial property portfolio is strategically positioned to provide steady income, albeit subject to property prices. Improving consumer sentiment and steady household spending are potential near-term drivers. Offering an attractive mix of capital growth and income we initiate coverage with a ‘buy’ recommendation.
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