In Brief: Retailers That Rock, James Hardie & Infomedia

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

Peek into the shifting dynamics of retailers, including Harvey Norman, James Hardie’s upgrade, and Infomedia’s transition.

-Finding the secret sauce for retail outperformance
-Is Harvey Norman in the firing line?
-James Hardie’s share price reflects low expectations
-Infomedia looking to scale business

By Danielle Ecuyer

Quote of the week has moved to a snippet from MFS Investment Management on the US election.

“Election outcomes can have deep political, economic and social implications. Fortunately, the balance of power does not lie solely in the hands of an individual or a party, but rather in a system of distributed power replete with checks and balances.

“The push and pull of the political process has fostered an environment in which the US economy and equity market have become the largest in the world. In election years and other times of change, it is important for investors not to let news headlines knock them off course.

“Maintaining a disciplined investment approach, a long-term time horizon and a sensible rebalancing plan remains a sound approach in this election year, as in others.”

What Factors Make a Successful Retailer?

Looking at offshore retail companies to examine the characteristics marking success, Jarden has identified a list of Australian retail companies prioritised as “category killers” and the strategic features driving out-performance.

The broker notes the sector has “bifurcated”, necessitating a more “bottom-up” analysis rather than “top-down,” meaning company-specific factors, rather than macro drivers, have a greater impact on earnings out-performance.

Jarden concludes the key success factors are market share gains, leading to growth in business revenues, as evidenced in JB Hi-Fi ((JBH)) and Wesfarmers ((WES)), specifically Bunnings and Kmart.

Margin expansion is also key, where businesses leverage scale to increase profits, as led by Wesfarmers, JB Hi-Fi, and Super Retail ((SUL)), while upward EPS surprises are also important, with some retailers necessitating positive EPS revisions.

Combining these factors, Jarden finds successful companies are rewarded with a premium valuation multiple. The same trend is seen overseas, with Walmart and Home Depot as examples. Notably, leading companies such as Dick’s Sporting Goods and Germany’s Ceconomy have succeeded despite increased competition from Amazon.

The “secret sauce” includes expanding total addressable markets through trade and retail or B2B options, private labels to boost margins, omni-channel marketing across e-commerce, product and service innovation, and loyalty programs to drive repeat business.

Domestically, the broker expects a more competitive market due to online marketplace growth, like Amazon, which will require higher capital investment and incumbents moving into adjacent categories.

Jarden anticipates, when it comes to market share gains, Wesfarmers, Woolworths Group ((WOW)), and Super Retail are most likely the primary beneficiaries. On EBIT margin, Coles Group ((COL)), Wesfarmers, and Endeavour Group ((EDV)) are expected to lead.

In summary, Jarden sees JB Hi-Fi and Super Retail as the most attractive, assuming both retain momentum achieved over the last five years, with JB Hi-Fi potentially benefiting from a replacement cycle. Endeavour appears at risk of further de-rating, while Wesfarmers is viewed as fairly valued with Woolworths in a better position if the core business advances as anticipated by the analyst  in 2H FY25.

Jarden has a Hold-equivalent rating on Coles, Super Retail, and Wesfarmers, with target prices of respectively $16.90, $16.60, and $61.20. Woolworths and Endeavour are rated Overweight, a ranking below Buy but above Hold.

Target prices are $37.30 for Woolworths and $6.00 for Endeavour. Endeavour’s quarterly update is due for November 11, and Coles’ AGM is scheduled for November 12.

Competitors Taking a Bite Out of Harvey Norman

Goldman Sachs has downgraded Harvey Norman ((HVN)) to Sell from Neutral, ahead of its AGM on November 27, citing a challenging macro environment.

The analyst expects market share losses in electronics and furniture as JB Hi-Fi and Officeworks, along with Amazon, gain market share.

In New Zealand, JB Hi-Fi plans to double its store count to circa 31 by FY27 from 14 in FY23. Harvey Norman operates 45 stores. Goldman believes consensus earnings forecasts are too high, with the analyst’s EBIT estimates below consensus by -8% to -13%, between  FY25 to FY27. The target price is reduced to $4 from $4.50.

James Hardie Receives an Upgrade

JP Morgan has previewed James Hardie Industries ((JHX)) ahead of its 2Q25 results on November 13, noting consensus earnings appear conservative at the lower end of management’s guidance range.

Recent feedback from US building materials companies and builders suggests a slightly more positive outlook, with industry expectations for activity to pick up in 2025. Recent hurricanes may affect the December quarter, impacting Hardie’s Florida plant and causing recovery delays.

Risks to guidance include hurricane impacts and margin pressure as other regional capacities are stretched and haulage prices impact costs. Much of the bad news is believed to be priced into the share price.

JP Morgan has raised its target price by 6% to $55.

Infomedia Refresh

Moelis initiates coverage on Infomedia ((IFM)) with a Buy rating and a target price of $1.88.

Infomedia operates globally, with a presence in over 186 countries and partnerships with more than 50 original equipment manufacturer brands. Headquartered in Sydney, and serving approximately 250,000 users, the company is a significant player in automotive software. Infomedia also has offices in Melbourne, the UK, Germany, and the USA.

The broker highlights Infomedia’s strong global position in electronic part catalogues, under Microcat, and service workflow software, Superservice, which have built long-established relationships with car manufacturers and dealerships, supporting recurring revenues.

Leveraging its existing business, Infomedia is expected to expand into data analytics with Infodrive and e-commerce through SimplePart. Moelis believes the mature business generates sufficient cash to support this investment program. Microcat and Superservice provide a VIN-specific database (individual Vehicle Identification Numbers) covering over 1bn vehicles, offering insights into the parts and service markets.

Growing competition in the auto market, particularly from new Chinese brands, and an expanding fleet of “connected vehicles” present growth opportunities for Infomedia. As the company consolidates its databases and integrates systems, the analyst sees potential to unlock the “strategic value” of its portfolio, enabling more innovative products and services.

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