MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from 8020 Invest investment manager Angie Ellis. 

What’s hot

Inflation and interest rate rises have dominated global equity markets throughout 2022, which has seen a rotation out of growth stocks into more value plays. Retail stocks can have mixed performance during inflation, which is defined as the sustained rise in the price of goods and services in an economy.

But Ellis is confident in two ASX retail stocks throughout this inflationary period.

Top Picks –  LOVISA HOLDINGS (ASX:LOV)

“This is a stock I have held since their IPO back in December 2014 but I have traded it many times,” Ellis said.

She said the growth in the vertically integrated jewellery store is exciting including its global rollout story.  Lovisa Holdings added 85 new stores in FY22 including 55 of those in the US and  had a total of 629 at EOFY.

“In the last call they talked about momentum increasing in FY23 so we could see an acceleration in new stores,” she said.

“They could potentially open 143 stores in FY23 based on 22 stores opening in the first eight weeks and over the past 12 weeks they have entered four new countries including Poland, Canada, Namibia and Hong Kong.”

Ellis said Lovisa Holdings has also set up subsidiaries in Mexico and Italy so the exciting markets may be added soon.

“Mexico has 130 million people and they do well in Southern California with this demographic so it seems likely they will continue to do well,” she said.

“China too could be a future opportunity with the new CEO Victor Herrero responsible for taking Zara into China and he lived for years in Shanghai so it’s a market he knows well.”

Ellis said Poland is a start of Lovisa’s move into Eastern Europe, with the region a possible target for future growth.

“Victor is committed to building a global brand so he wants to be in all key markets – so India could be a potential market too.”

Lovisa recently announced strong FY222 results including sales growth of almost 20% in FY22.

The company said in response to inflationary pressures it implemented price increases during Q3 FY22 which helped deliver strong sales growth with minimal impact experienced in volumes. Gross profit was up 63.8% on FY21 with gross margin at 78.9%.

“This is a great business and the CEO change means an exciting time of growth,” Ellis said.

She visits the stores often to chat to staff and said they rave about the corporate culture.

“I still wear a pair of red earrings I bought from the store five years ago (they still fit!) and get lovely comments about them  – those earrings are still selling well in the stores today,” she said.

She said rising inflation may see customers choosing to buy lower cost jewellery and while Lovisa doesn’t have a dividend policy it is happy to send funds back to shareholders if not needed.

“The dividend was 74 cents,  much higher than most analysts predicted,” she said.

Lovisa recently held a two-day leadership conference in Melbourne to bring the team together and build on their corporate culture.

New hires include Matthew Stuckings as CRM and loyalty manager with deep expertise in Shopify and Google Analytics.

The Lovisa share price is up 15% year to date.

 

BEACON LIGHTING (ASX:BLX)

Beacon is one of Australia’s largest lighting and fans store but it also has sales offices in Hong Kong, Germany and the US with a support office in China under Beacon International.

Ellis said the company introduced a direct to consumer focused website in the US in 2019 focused on ceiling fans.  The ceiling fans market in North America is expected to grow from US$1,804.62 million in 2019 to US$2,684.58 million by 2027. It is estimated to grow at a CAGR of 5.2% from 2020 to 2027

She said they also have a premium, unique product with Fanaway, where the  blades retract. In 2004, Australian innovator Joe Villella had a vision to create a ceiling fan that had blades concealed within a light pendant and only transformed into a ceiling fan when switched on.

Industrial designer Neil Waldbaum was commissioned to develop a working prototype of Villella’s vision. Fanaway appeared on the ABC’s New Inventors TV show on ABC in October 2005 and won the People’s Choice award for that episode. Soon after, Beacon Lighting was brought on board to develop the product to the manufacturing and production stage, and further promote and exclusively distribute Fanaway to the global marketplace.

Beacon is also  targeting the growing but fragmented US lighting market. The company recently delivered record sales for FY22 of $304.3 million, which is a 5.4% increase over the previous year. It also reported a 6.2% uplift in gross profit to $210.4 million, while EBITDA improved by 7.8% to $92.7 million.

Among other FY22 highlights trade sales increased by 22.3%, while online trade sales rose by 67.6%. Online sales increased by 31.3% to $34.1 million, while Beacon International USA sales increased by 51.9%.

Beacon is also paying an annual fully franked dividend of 9.3 cents/share compared to 8.8 cents/share in FY22.

Growth in the US increased by 51.9%. Beacon International sales from Hong Kong, Europe and the USA rose 27.9% to $15.7 million in FY2022.

“They have a strong balance sheet so there is a potential for M&A opportunities in the US,” Ellis said.

Beacon has launched a new e-commerce website in US, while it has also opened a new sales channel on leading Chinese platform Tmall Global. Its primary objective for FY23 is to grow trade sales in Australia by more than 25% along with development and rollout of new stores in Australia. It will also focus on wholesale growth in global markets through Beacon International.

The Beacon share price is down ~24% year to date.

 

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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