Grady Wulff

Market Analyst, Bell Direct

It’s December and that means one thing – ’tis the season for retail stocks shopping.

Those stocks got some welcome, and rare, exposure last weekend, starting with Aussies spending a record near-$7bn on Black Friday, and shelling out right through to Cyber Monday.

So popular is the weekend that October’s retail sales slump has been largely attributed to Aussies holding fire for the inherited annual celebration of spend.

Zooming out a little though, and the situation for retailers is… damp. Australian retail sales volumes have fallen for three consecutive quarters for the first time in 15 years. Yep, the last time was during the GFC of 2008.

Maybe there are some bargains to be had in retail stocks then? Wulff says despite “challenging headwinds”, there is still something to like about these three ASX retail plays:

Temple & Webster (ASX:TPW – $8.08, $993m MC): A week before Black Friday, you could have snapped up TPW for around the $6.20 mark – something to add to your 2024 trading diary, perhaps.

But right now, CEO Mark Coulter is noting sales had picked up as consumers make the move into more affordable home goods.

Wulff says TPW has also recently made key strategic moves during the period of slowing demand.

“By investing in AI, TPW has looked to enhance the customer experience, and increased marketing spend to gain further market share in the furniture market.”

Harvey Norman (ASX:HVN – $3.88, $4.83bn MC): Still jamming on the brakes with very little results since a post-pandemic slide began at $6, there was some positive news out of a Q1 trading update late in October.

According to Wulff, the strength in foreign currencies proved a boon, while the company also announced a buy back for up to 10% of the company’s shares – a more than $440mn double down.

The buyback is kicking off this month and should be done within 12 months.

Historically, that means management is taking the opportunity of what they clearly see as undervaluation to consolidate while it can.

Lovisa Holdings (ASX:LOV – $18.89, $2.07bn MC): While retailers struggle through the high cost-of-living environment, Lovisa is one of the few remaining resilient, says Wulff.

“A trading update at its AGM showed overall sales up strongly… driven by the company’s strong global rollout strategy,” Wulff says. And with the first store in China on the horizon soon, the company’s fundamentals remain strong.

This one’s sharply off its $26.90 highs hit just six months ago and, according to Wulff, has twin pillars to its success.

“The two key strengths of the business are its high-turnover, low ticket nature of products and free piercing offering for any purchase of earrings as this captures a new audience who may not have shopped with Lovisa previously.”

Broker Upgrades

Clover Corporation (ASX:CLV – 85c, $145m MC): Taylor Collison has slapped an Outperform rating on the infant formula specialist, with an average target price of 95c.

CLV has also been a consistent payer of dividends and has not needed to raise capital in order to fund growth, so there’s a great start.

It also happens to be the world leader in the manufacture of encapsulated Docosahexaenoic Acid (DHA), an Omega-3 fatty acid that is a primary structural component of the human brain, cerebral cortex, skin and retina. Ew.

But, it is found in breastmilk – and when used as a supplement, has been shown to help brain development in babies and children.

In fact, minimum amounts of DHA in infant formula are mandated in many jurisdictions globally. There’s a catch though – high levels of DHA produce a fishy odour/flavour. Clover has an exclusive licence for encapsulation tech developed by CSIRO and patented in 1999 which it says negates this.

“DHA is around 3% of the advertised price of a tin of infant formula. Therefore, we estimate the total market for DHA in infant formula is approximately $1.1 billion,” said the note from Taylor.

Catalyst? “Many jurisdictions” are now moving from an 8mg/100kcal DHA requirement to a 15mg/100kcal requirement. That, according to Taylor Collison’s calculations, could equate to an estimated “total market for CLV products at $500m.”


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