Which ASX small caps are in play in the current housing boom?
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Barely one year out from a pandemic that had crushed our economy to a standstill, the Australian housing market has seemingly marched ahead, and is now on the cusp of yet another boom.
Interest rates are at an all-time low, the Homebuilder grant has just been extended, and housing markets are suddenly running hot again across the country.
Melbourne median house price has hit a record $1 million, Brisbane’s home prices are growing the fastest in several years, and Perth’s auction clearance rates are at three-year highs.
And in Sydney, Westpac has predicted a 10 per cent increase in the city’s dwellings in 2021, and a similar gain in 2022.
The bank is also predicting a 20 per cent jump in Australian property prices between now and 2023.
That’s all good news, for some at least, because in a housing boom there is always a trickle down effect that benefits a lot of other businesses down the food chain.
And it’s not just the bankers that are laughing all the way. Renovations and home furnishings retailers will mostly likely flourish too in a bull market like this one.
Giant Wesfarmers (ASX:WES) for example, has been on fire lately. Its share price has risen by almost 15 per cent since March, on the back of double digit sales growth in its hardware stores, Bunnings.
But it’s not all about the big caps.
Stockhead has identified a list of ASX small caps that could benefit from a prolonged bull market in housing constructions.
Shares in this furniture and homewares retailer have more than tripled in just the last 12 months. The company is a pure play online retailer, and its sales have surged significantly during lockdown periods. TPW has invested heavily in its technology, launching its artificial intelligence-generated room ideas on the iOS app platform. The app could become a game changer as more people transition to online purchases for furnishings.
The last half shows the company’s revenues growing by 118 per cent to $161.6 million.
This fabrics tech business company has had a fantastic last 12 months, with its share price rising by 150 per cent. The company’s target market is global. Its products are not used just for the homes, but also in agriculture and mining. Its flagship is the Coolaroo shade product used in the garden and as a pet shed.
Its latest half shows that its revenue has increased significantly by 70 per cent to $106 million, for a net profit of $8.8 million.
Bedding specialist Joyce Corp is another home furnishing play that has seen its stock price blasting through the roof in the past year, surging by 175 per cent. The company manages two brands, the 51 per cent-owned KWB Group, and its franchise business, Bedshed. Both brands have delivered strong results, providing the group with an increase of 119 per cent in NPAT to $7.6 million for the latest half.
The company also paid out an interim dividend of 7c a share, which was 40 per cent higher than the previous corresponding half.
This stock is another strong performer in the construction boom. GWA is an importer of consumer bathroom and kitchen appliances. Its brands are well known, and include Caroma, Methven, Dorf, and Clark.
GWA is targeting a strong recovery in the second half of FY21, after seeing its revenue drop by 4 per cent to $197 million in the latest half. Its share price has increased by around 30 per cent over the last 12 months.
We’ve all seen Nick Scali’s retail stores, but its online platform is starting to gain popularity, with its online sales soaring during the pandemic. The company has plans to expand its ANZ footprint by opening 85 new showrooms across both markets over the coming years.
Its share price has almost tripled in the last 12 months, and the company has been paying dividends consistently since 2010.
Apart from the home furnishing segment, there are also the pure play real estate companies that are worth a mention, as they obviously play a pivotal role in the whole ecosystem.
We’ve identified two small caps that fit that bill.
This home development company has done particularly well amid the construction boom, with its share price rising by 60 per cent in the past year. The company’s business model is to acquire land, develop, and subdivide it.
Although the latest half’s revenue has been trailing the previous half, the current building frenzy might just be what the company needs.
This is one the of most popular websites in Australia for property rentals. The website has 3.9 million unique visitors, which have increased steadily over the years. The company says it is serving a market of 7 million+ renters in Australia.
RNT’s latest half shows that revenues have increased by 24 per cent to $1.48 million. Its share price has rocketed by 550 per cent in just one year.