In Brief: Confidence, Consumers, Conditions

Weekly Reports | Apr 26 2024

Weekly Broker Wrap: upside for household goods; outlook for the Australian consumer; SMEs doing it tough; and preferred stocks within the furniture & hardware category.

-Upside for the Household Goods sector in FY25
-Conditions and confidence levels for the Australian consumer, small businesses
-Jarden’s preferred stocks in the Furniture & Home category

By Mark Woodruff

Upside for the Household Goods sector in FY25

Jarden sees a more positive macroeconomic outlook for the Household Goods sector into FY25, with hardware set to outperform other categories as it is skewed towards early-stage housing development, followed by furniture and electronics that are driven more by the replacement cycle.

An around ten-month pipeline for construction will provide the early stage development activity to boost hardware, explains the broker.

Rising house prices are expected to help underpin a big lift in spending for the Household Goods sector, along with repair & remodel (R&R) activity, cycling of weaker new housing, and easing interest rates.

To explain why hardware benefits first when housing sentiment improves, Jarden point to the less than five-month historical lag between property values and hardware, with a further two-to-three-month lag between the hardware upswing and furniture sales.

Metcash ((MTS)) and Wesfarmers ((WES)) represent the best exposure to hardware, note the analysts, with Beacon Lighting ((BLX)) benefiting next due to mid-stage housing development. 

For furniture, Nick Scali ((NCK)) is preferred while Harvey Norman ((HVN)) and JB Hi-Fi ((JBH)) are best for exposure to appliances/electronics. 

The broker cautions underestimated changes are looming for major household goods operators in Australia, including: more choice as brands increase direct businesses and Amazon grows; price competition from new suppliers; and last mile delivery led by Amazon requiring incumbents to lift capex, review embedded delivery terms and re-engage suppliers.

Jarden leans toward companies less exposed to the competitive threat posed by Amazon's entry into bulkier items such as Wesfarmers, Nick Scali, Metcash and Beacon Lighting.

Across the household goods space, the broker retains its preference for Metcash, Temple & Webster ((TPW)), Nick Scali, and Beacon Lighting.

Conditions and confidence levels for the Australian consumer and business 

Australian consumer confidence and sentiment levels will pick-up materially over the second half of 2024 as Stage 3 tax cuts provide a strong boost to household disposable incomes, anticipates ANZ Bank. Otherwise, there will be downside risk for the bank’s current household consumption and GDP growth forecasts, perhaps leading to a more aggressive interest rate cutting cycle.