Tag Archives: Consumer Discretionary

article 3 months old

Oz Retail A Hard Sell

- Retail spending below trend
- Brokers expect slow recovery
- Merrills sees further deterioration in FY14


By Greg Peel

Last month Wesfarmers ((WES)) downgraded profit expectations for its Target discount stores (Target Downgrade Sparks Discounting Fears). Analysts questioned target’s inventory management, and voiced their opinion that warm autumn weather, which had led to low winter apparel sales, may well force Target into discounting which would impact on all apparel retailers, including the department stores. The evidence suggests analyst fears were justified.

Hallenstein Glasson (HLG.NZ) is a New Zealand-based company but also operates thirty stores across the Australian east coast under the Glassons brand. The group has reported falling sales in the period February-May following a difficult first half FY13, citing impact from “aggressive discounting and price based promotion” from large Australian chains commencing winter clearances earlier than usual. Deutsche Bank suggests Target’s inventory problem and aggressive clearance activity has indeed been the trigger. Fortunately both David Jones ((DJS)) and Myer ((MYR)) reported “clean” inventories at their recent March quarter sales updates, and Deutsche suspects the impact of discounting will have been contained. The analysts have Myer as their top pick in the sector given an 8% dividend yield.

Deutsche Bank notes there has been some deterioration in consumer sentiment since earlier in 2013, with the May Federal Budget adding to despondency. The analysts believe, nevertheless, that weather-related weak apparel sales affected a drag on sentiment measurements. Conditions will remain lumpy, say the analysts, but positive signs in the property market following recent interest rate cuts should encourage a gradual improvement in the retail climate.

Consumer spending growth has dropped below trend and is close to recessionary levels in the discretionary sector, notes Deutsche, which is disconcerting given the lack of growth elsewhere in the Australian economy. Wealth is rising, which is usually supportive of spending, but Australians seem more focused on unemployment fears. The unemployment rate surprisingly dropped in May, but well publicised lay-offs across the country can only encourage consumer nervousness.

RBA rate cuts have had only a muted impact, perhaps because they have been well spread, Deutsche offers. Yet sentiment appears now to at least be stabilising and any further rate cuts should have a more positive effect. A pick-up in FY14 thus looks likely, Deutsche believes. Spending on staples remains at trend growth and the impact of last year’s substantial utility bill hikes should soon cycle through, freeing up cashflow. Food inflation is nevertheless a risk.

Deutsche sees logistics and retail real estate investment trusts (REIT) as a better option for investment in an improving retail landscape, with increasing air travel a reason to hold Sydney Airports ((SYD)). Gaming is also an attractive subsector.

A significant issue for listed retailers these past few years has been the growth of on-line shopping and discovery by Australian retailers that similar goods can be purchased at lower prices when bought from offshore. Major Australian chains are once again uniting to lobby the federal government to scrap the $1000 threshold GST exemption, although many an on-line shopper will tell you price variations reflect a lot more than just GST.

Morgan Stanley notes that depending on product category, Australian retailer prices are still 11-35% more expensive than those of offshore on-line peers, but the analysts also note this gap has narrowed from 26-174% in April 2011. A Morgan Stanley survey also shows Australian consumers are prepared to pay a premium to purchase from domestic retailers. The now weaker Aussie dollar should narrow the price gap even further, as well as encouraging more inbound tourism.

Morgan Stanley thus suggests that retailer headwinds are abating.

The analysts also point to evidence wholesalers and brand owners have not been fully passing on the import price benefits gleaned from the Aussie dollar’s rise and considerable time above US dollar parity to retailers, who cannot thus pass benefits onto to consumers. As the Aussie weakens, it is the wholesalers and brand owners who will suffer reduced margins while the retailers will not be impacted.

In the meantime, traditional bricks & mortar retailers have finally pulled their collective head out of the sand, recognised the internet is not just a passing fad this time around and have jumped on the back of the on-line bandwagon, thus closing the gap on the more savvy first movers.

Morgan Stanley has updated Myer to Overweight and JB Hi-Fi ((JBH)) and Harvey Norman ((HVN)) to Equal-weight. The analysts cite more reasonable valuations post share price falls, upgrades to longer term earnings forecasts, and leverage to a slowly improving retail cycle as justification. For the first time in five years, Morgan Stanley prefers discretionary retail to supermarkets, given supermarkets’ rich valuations, minimal earnings growth and “irrational” store roll-out plans.

It was all going swimmingly until BA-Merrill Lynch stepped up to the lectern.

Merrills believes discretionary retailing could be entering a third phase. The first phase was the spending frenzy in the boom years up to 2008, the second phase was the inevitable post-GFC consumer retreat, and the third phase will be “even tougher”, Merrills suggests. The analysts believe traditional retail spending will be “crowded out” by below average income growth falling short of rises in household costs and increasing unemployment. These factors will weight significantly on discretionary retailers in FY14, Merrills warns.

The analysts have downgraded their sector earnings forecasts to 8% below consensus and believe like-for-like sales growth will be very hard to come by, particularly for retailers not in a growth segment. Operating costs will nevertheless increase, weighing on margins.

Merrills previously rated all discretionary retailers under coverage as Underperform, with the exception of OrotonGroup ((ORL)) on Buy. Having adjusted for recent price falls, and overlaying a generally bearish sector view, Merrills continues to rate Myer, JB Hi-Fi, Harvey Norman and Pacific Brands ((PBG)) as Underperform and has also downgraded Oroton to Underperform. David Jones has been upgraded to Neutral due to the value of its property, and Premier Investments ((PMV)) also now enjoys a Neutral rating. Super Retail ((SUL)) has been upgraded to Buy.


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article 3 months old

Weekly Broker Wrap: Bank Bubble, Cautious Consumer, Tested Telecoms

-Has the bank bubble evaporated?
-Discretionary spending still weak
-Deutsche Bank prefers logistics, some AREITs
-Telecoms mature, mobile margin focus
-Plasma market is robust
 

By Eva Brocklehurst

Australian banks were in bubble territory at the start of the year but are they there now? Bank shares, having been buoyed by the chase for yield, have fallen sharply since the beginning of May and the sector returns are down 14%. UBS finds bank stocks are still not cheap, but valuations are less stretched. The case for an aggressive underweight stance may have run its course. The banks are now much closer to their global peers in terms of return on equity versus the price to book ratio, with the exception of Commonwealth Bank ((CBA)).

From here, catalysts will be centred around the macro view, with one of the key risks being a slowdown in the Australian economy and weak employment. Ongoing Australian dollar weakness and the ratcheting back of the US Federal Reserve's quantitative easing will also play a part. Support, in UBS' view, will come from further cuts to the cash rate from the Reserve Bank, a sustained pick up in the housing market and domestic investor rotation back to the sector as a "least worst" alternative.

In retracing the bank territory, UBS has decided to upgrade ANZ Bank ((ANZ)) to Buy from Sell. Bendigo & Adelaide Bank ((BEN)) and Bank of Queensland ((BOQ)) are upgraded to Buy from Neutral. ANZ's operations are performing well while the regional banks offer more upside now. ANZ is viewed now trading at a more appropriate 11.2 times price earnings and 1.6 times book value. The upcoming appointment of a new head of international and institutional banking could be critical to the stocks rating as well. UBS believes this appointment, most likely from a large Asian bank, must satisfy the market by further developing the super regional strategy and the person be seen as a potential successor to the CEO.

Bendigo and Adelaide Bank offers upside in UBS' view as the network matures while there is leverage to improved equity and debt markets. The risk centres on the very thin provision coverage. Bank of Queensland, on the other hand, offers a more classical bank turnaround opportunity as it works through legacy issues. The risk here is exposure via its mining leasing book.

Australia's bank stocks have typically been a safe haven in times of currency volatility. The unwinding of the yield trade and the renewed search for growth has signalled the flight-to-safety is less prevalent now. Macquarie notes the banks outperformed the market up to April 2013, driven by the yield trade and their safe haven status. Since then the banks have underperformed, driven by short selling and a turn away from yield to seeking growth. Macquarie thinks further de-rating may occur as the yield trade unwinds, but the banks are expected to restore their safe haven status in the ASX200 universe in the medium term.

Consumers are not co-operating. Spending growth has dropped below trend and the response to lower interest rates has been muted. Largely, in Deutsche Bank's view, because of how slow the rate cutting cycle has been. Discretionary spending growth in value terms has dropped below 2%. FY14 could be better as unemployment expectations look to have stabilised and an upward trend in wealth may encourage consumers to lower their savings rate.

Deutsche Bank believes growth in discretionary spending is close to recessionary levels, with a softening in both goods and services. Cars and gambling are the two items that have held up well. Early evidence is pointing to a resumption of spending on services such as travel and eating out, rather than on retail items. If this continues, it is likely to be a replay of 2010-12 where spending held up but retailers saw little benefit.

Spending on essentials, meanwhile, is growing around trend. What stands out is the large rise in the price of utilities. This relates to a large price increase in September 2012 at the time of the carbon tax introduction. When this cycles through, Deutsche Bank expects spending on utilities will track lower, allowing growth to pick up elsewhere. It will likely be food. Food inflation has been at historically low levels and an uptrend is now in place.

From all of this Deutsche Bank maintains a gaming exposure in stocks, and with firming air travel continues to hold Sydney Airport ((SYD)). Without an improvement in retail spending, the broker sees better options in logistics and those retail AREITs that have exposure to services spending. Consumer staples are viewed as expensive. The broker remains of the view that monetary policy is yet to have its maximum impact. The quantum of official rate cuts has been small and gradual relative to history. A further cut of 25 basis points to the cash rate is expected by September, which should buoy sentiment.

Australia's telecommunications industry is mature by various measures, one such being total telecom revenue as a percentage of GDP, which is 2% according to Morgan Stanley. The broker is not expecting a significant increase in total telecom revenue as a percentage of GDP but thinks the mix will change, with mobile increasing share as PSTN revenue moves to zero and the NBN builds. This sector has had one of the highest earnings revisions in the last three months. Positive revisions for the smaller names have been driven by consolidation of the broadband sector and resulting synergies.

The sector currently offers an average 5.3% dividend yield and a 1.9% spread to 10-year Australian government bonds, which should be sustainable over the medium term. Morgan Stanley highlights Telstra's ((TLS)) metrics in this regard, being 2.7% spread to the 10-year bond with a 6.1% dividend yield. Hence, for Morgan Stanley the sector offers investors an alternative to investing in bonds and the broker has a constructive view on Telstra because of these metrics, plus the exposure to mobiles.

Australia appears to be around one year behind the US in Smartphone penetration and Morgan Stanley expects earnings margin expansion through the Australian mobile sector for scaled players. There is increasing focus on mobile profitability in the US industry, and Australia appears to be following suit, a factor that the broker suspects is not well appreciated by the Australian market.

Plasma prices have risen again and this industry is upbeat on a global basis, with demand continuing unabated. UBS hasn't seen two price increases in the same year since 2007 and this is being read as underscoring a robust industry. US albumin prices have firmed to US$37-38 per vial and prices are expected to head towards US$40/vial in 2014. The past high point was US$50/vial but this is considered unlikely to be reached this time around. CSL's ((CSL)) collections are growing around 12%. The major risk facing CSL, in UBS' view, is changes to the plasma market dynamics and weakness in the prices that CSL is able to set for it products.
 

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article 3 months old

Breville Marked Up For Growth

-Good US expansion opportunities
-Well placed in Oz despite sluggish retailing
-UK market now on the boil
 

By Eva Brocklehurst

Small appliance distributor and manufacturer, Breville Group ((BRG)) boasts a firm local presence and strong sales growth in North America. The stock has been caught up in the subdued outlook for retailers but its position in a key growth area and expansion opportunities mark it for attention. It has certainly been noticed by JP Morgan, which initiated coverage with an Overweight rating.

Last time FNArena looked at the stock, back in March, the company confirmed the Keurig distribution agreement in Canada would end. This will occur at the end of this month. The news of the Keurig loss was brushed aside but several brokers were a little cautious about the Australian manufacturer of appliances, given the weak consumer sentiment and retail sales. CIMB retained an Outperform rating at the time because the stock offered ongoing growth and market penetration and the Keurig announcement just took away uncertainty. Macquarie, too, did not expect a long-term impact from the cessation of Keurig and also retained an Outperform rating, observing that Breville's own brands were better quality anyway.

Since then, there's been no evidence the company has faltered. Brokers cite strong growth in underlying earnings, favourable international prospects and a healthy balance sheet. These positive elements continue to battle against the wishy washy Australian retailing scene and the general expectations for a softer economy.

Those positive on the stock emphasise the potential that comes from the large US and UK markets. JP Morgan currently forecasts 3% sales growth in Australia and 7% sales growth in the US for Breville but thinks these forecasts could still be conservative. FY12 earnings were broken down into Australia (28%), North America (48%), New Zealand (5%) and other international (19%).

The company has two main brands. Breville is the premium brand and Kambrook the discount brand. This is one of the drivers of success, in JP Morgan's view. Breville's share of small cooking appliances sales is 29%, across all brands, with the Breville brand alone accounting for 17%. The company has been affected by the rise of house brands, such as Abode by Woolworths ((WOW)), Homemaker by Kmart ((WES)) and Expressi by Aldi. These have turned major customers into major competitors.

House brands increased market share to 25% in 2012 from 14% in 2009. After an initial dip following the home brand onslaught, Breville has been able to recover its market share via the dual brand strategy. This is a position of strength. JP Morgan observes the macroeconomic environment has customers either trading down to entry level brands or trading up to premium brands and Breville benefits either way.

The domestic market is relatively mature but the market for small domestic appliances is one of the more robust of the retailing sector. JP Morgan cites a report that shows sales increased 7.7% in the March quarter for small appliances versus just 2.1% for total discretionary retail sales, excluding food and cafes. The broker also notes the likes of JB Hi-Fi ((JBH)) has expanded its ranges of small appliances and that takes in the Breville product. Home improvement retailer, Masters, also intends to expand its footprint and this could, potentially, expand Breville's business. 

Breville also invests heavily in product innovation and marketing. The launch of the co-branded Nespresso machines is testament to this. Nespresso has 6.5% market share, having risen from 1.7% in 2009. Another driver of success is North America, where Breville has a market share of around 10%. The first half revealed North American core product sales were up 30%. Breville also achieves higher earnings margins in the US compared with Australia, because of the premium product.

Stores are also expanding within the existing US retailer customer base. Breville products are not stocked in all stores so one of the channels for growth is increasing the number of existing stores to which the company distributes. The existing retailers have strong growth plans. Bed, Bath and Beyond and Williams Sonoma posted 10-year compounded annual sales growth of 10% and 6% respectively. Amazon.com experienced 32% growth, admittedly over a wide range of categories. They're all expanding and that's the important theme for Breville.

Then there's the UK. This new market is worth $1.7 billion in the domestic appliances business. Breville has launched there with 16 flagship products called Sage by Heston Blumenthal, and the celebrity chef has endorsed the product. Distribution is through high-end specialty retailers such as Harrods, Selfridges, Debenhams and House of Fraser. Okay, there are risks. Breville is attempting to build a new brand from scratch. Nevertheless, JP Morgan is confident the endorsement of Heston Blumenthal could emulate the success of Jamie Oliver's relationship with Tefal. The launch is too new for sales details, thus the revenue is not factored into valuations.

On the FNArena database the consensus target price at $6.75 is suggesting 6.8% downside to the last share price. The target price has risen over the last week, from $6.47. The dividend yield is 3.7% for FY13 consensus earnings forecasts. Of the five brokers covering the stock on the database four have Buy ratings and one has Neutral (Credit Suisse). The range of targets is $6.00 (Macquarie) to $7.90 (JP Morgan).

Of those covering the stock, UBS produced a recent review. The broker upgraded the target to $7.70 in May from $6.30, as the company prepared for its UK launch. Success is expected but it's early days. The stock may not be cheap but UBS also thinks it is worth the price. Again, this is because of the strong potential in the US and UK markets. 

In Australia, BRG has five brands including Breville, Kambrook, Philips, Goldair and Ronson but concentrates on the first two. The international distributors business is headquartered in Hong Kong and sells products through 25 distributors globally. Breville sells products in Asia through a network of wholesalers who sell to retailers under the Breville brand, and a generic non-branded product to Original Equipment Manufacturers (OEMs) in Europe which brand the product as their own.
 

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article 3 months old

Billabong In Troubled Waters

-No bid forthcoming
-Brokers slash valuations
-Likelihood of expensive refinancing
-Asset sales have most potential
 

By Eva Brocklehurst

Another quarter, another failed bid, another downgrade. Surfwear and accessory manufacturer, Billabong International ((BBG)), is truly in difficulty. The red ink just became a lot redder. As they move to slash forecasts again brokers are asking, just what can be done to rescue the company?

The stock was reinstated on ASX after being in suspension since May 9. The company has ceased change of control discussions without a formal bid proposal. As a result of weaker trading in both Australia and Europe, earnings are now expected to be $67-74 million for FY13, a 9% reduction from the guidance provided in February.

Flagging sales are really not the problem. It's the debt. Unable to agree on a takeover of the company, Billabong is now in discussions with the two main bidding consortia, Altamont Capital Partners and Sycamore Partners, regarding alternative refinancing and asset sales. Around $350m of syndicated debt has to be refinanced, the next refinancing is due in July 2014. Deutsche Bank believes fixed charges cover is the primary concern for this business and it's the off balance sheet lease obligations that pose the biggest problem, as the falling earnings reduce the ability to service lease payments.

Effectively, the way to fix this is to increase the profitability of the stores. Closing some may help but Deutsche Bank sees two problems with this. Some landlords, particularly in the US, may not allow stores to close even if the lease is paid out, while loss-making stores are likely to have been closed already. Reducing the footprint will, therefore, reduce the top line revenue. If the Canada's West 49 stores could be sold, as the company has mooted, that would help generate capital and reduce lease obligations. The company bought West 49 for $110m in June 2010. CIMB believes this sale could provide important breathing space for the company and be a key milestone in the quest for a firmer footing.

Citi thinks the problems are not about the brand but more about the company's retail strategy and capital structure. The core surfing brands remain well regarded. Of the three main brands - Billabong, Dakine and RVCA, RVCA is considered the easiest to sell as it is small and less integrated into the retailing business. Citi envisages a price of around $50 million. Valuation support (book value) has been re-assessed at 23c a share, in Citi's calculations. This compares with $1.19 back in December 2012. Nevertheless, there's still equity value. Net tangible assets are estimated at $56 million and there's another $110m seen in brand value for Billabong, Dakine and RVCA. Credit Suisse calculates that a distressed asset sale for $50m generating $10m in earnings would cause the company to become free cash flow negative through to FY17. Such a sale would reduce the discounted cash flow valuation to 25c, but reducing the net debt burden would be a positive. An asset sale is probably the most feasible option, in Credit Suisse's view.

The private equity consortia may not be putting an offer to shareholders but they've been around for a while. These parties have either bid several times or been conducting due diligence for an extended period. What is of concern to brokers is that operational and financial issues are significant and this could be a key to the absence of a bid during the formal process. It is unlikely Billabong can refinance via traditional bank debt and an equity raising is also unlikely, given the steep discount that would be required.

Innovation is needed. Hence, the former bidders are in the box seat and equity holders are justified in feeling uncomfortable. More stringent demands could be made by financiers such that interest costs are high and security is taken over some of the assets. It all amounts to potentially poor treatment of equity holders and too much uncertainty. CIMB sees it that way, unable to provide a view with any conviction. Having said that, the broker does believe this uncertainty is obscuring the potential value of the business longer term. A trade buyer would likely see value in some brands and, therefore, a partial sale and recapitalisation is still possible.

The most positive aspect is the US business, which is trading well and Billabong's brands are holding market share. The weakness in FY13 also partly relates to an $8 million loss associated with the Surfstitch Europe start-up. While Citi suspects there is a second half loss in FY13 there should be some recovery in FY14. Nevertheless, the business is still deteriorating. Australia and Europe have experienced a sharp decline in earnings while the Americas have held up. Australasian year-to-date comparative sales are down 5.4%. Australian wholesale is bearing up and the weakness is seen largely in bricks and mortar retail. Europe is the main challenge, especially for the Billabong brand, in Deutsche Bank's view. In addition, losses from SurfStitch Europe were $4m higher than the company anticipated. Billabong has a 51% share in SurfStitch Europe.

Brokers have made substantial earnings revisions for FY13 and FY14. These reflect lower operating earnings and higher borrowing costs. On the FNArena database the consensus target price has reduced to 33c, suggesting 44.8% upside to the last share price. This target has halved over recent days - from 66c on May 30 to 33c now. Buy ratings have disappeared. There are three Sell and four Hold ratings on the database.

See also, Troopers Circle Billabong on February 25 2013.
 

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article 3 months old

Weekly Broker Wrap: Overvalued Aussie Banks; Small Engineers Reviewed; Resi Building Pick-Up

-Major banks overvalued?
-Bank asset quality improving
-Small cap engineers hold up
-Small cap retailers affected by discounting
 

By Eva Brocklehurst

Australia's major banks are overvalued by about 20%. This is CIMB's view. The bank registry data suggests foreign investors were the marginal buyers of these stocks in recent months and valuations for foreign investors may have been lifted by very low global risk-free rates. Rising global bond rates and the weaker Australian dollar would, therefore, be a threat to foreign demand for bank shares. This scenario underpins CIMB's Underweight call on the major Aussie banks.

CIMB is not impressed with the return on equity figures for the banks and has attempted to get a handle on what is driving the excessive valuations. The required returns for most offshore investors, especially those investors using the yen as a base currency, are much lower than for Australian investors. Foreign investor valuations are tied to low bond yields and many do not hedge currency risk. As US Federal Reserve chairman, Ben Bernanke, starts to jawbone the market into accepting a reduction in US central bank asset purchases, the US dollar has rallied and bond yields have risen. Australian interest rates, meanwhile, are expected to stabilise, or perhaps even fall. Lower rates may reduce the risk-free rate for foreign investors even more but, in the most likely scenario, the reduced yield gap between Australian and US rates should cut demand for Australian investments and in doing so reduce the demand for major bank stocks.

Looking inside the Australian banks, Goldman Sachs finds asset quality trends are improving. The sector's ratio of non-performing loans to exposure at default in the first half of 2013 fell to 95 basis points, from 103 bps in the second half of 2012. The decline was predominantly driven by lower numbers of impaired assets. Most industry exposures saw a fall in the ratio. Goldman has updated bank exposures to the mining services sector, given the pressures in this business as a result of a reduction in resources business. The analysis found mining services exposures represented less than 0.5% of exposure at default, with National Australia Bank ((NAB)) having the highest exposure at $2.8 billion and Commonwealth Bank ((CBA)) and Westpac ((WBC)) the least at less than $2 billion.

Goldman expects ANZ Bank ((ANZ)), CBA and Westpac will have combined bad debt charges at 10% below mid cycle levels in FY13. Despite this, the market is currently paying an 11% premium to the 15-year average price to underlying earnings multiple for these three banks. This is not sufficiently discounting the ongoing weakness in the non-mining side of the economy, in Goldman's view. Valuations for NAB are seen as more supportive, suggesting NAB should trade at an 11% discount to peers, versus the current 19% discount. This is why Goldman maintains a Buy rating on the stock.

The greatest exposure the major banks have is to the retail & consumer industry, some 49% of their total exposure. Here, CBA has the biggest slice with 60% of total exposure. Next is business & property services, a 10% combined exposure with NAB having the greater part, 11% of the total. This industry remains the worst performing for the major banks, but non-performing loans did fall to 2.4% of exposure at default in the first half of FY13, versus 2.7% in the prior half.

NAB's UK exposure has meant it has not experienced the same level of improvement in business & property as have the others whereas Goldman believes Westpac has done an excellent job of managing property exposure, which dramatically expanded as a result of the St.George acquisition. Westpac's non-performing loan ratio has fallen to 2.9% from a peak of 4.8% in March 2011. Mining, agriculture, forestry & fishing comes in at a distant third, at 4% of total exposure. Here too, NAB has the larger share, with 6% of total exposure. ANZ is the one of the four with the highest non-performing loan ratio, at 3.3%, and Goldman suspects it has a higher impaired exposure to this industry segment.

JP Morgan has reviewed earnings estimates for the small cap engineering, mining and energy sector stocks. This is to reflect what the broker believes is the "new normal", as major Australian projects are completed over time. Key Overweight stocks include Cardno ((CDD)) and Ausenco ((AAX)). Fleetwood ((FWD)) is Underweight.

Cardno is preferred because it is leveraged to a broad-based US recovery with around 50% of sales generated in the US. Consulting is inherently more defensive and Cardno is the only engineering player that does not build, so has limited project construction risk. Also, the company is well placed to benefit from increased regulatory codes and environmental compliance. Environmental services form a large part of Cardno's sales. The other Overweight stock, Ausenco, is preferred on a relative basis as it operates in lower cost countries, with 80% of sales generated overseas. It is also one of the better capitalised small cap stocks with hardly any debt. It is highly diversified across commodities yet has no Australian iron ore exposure. As for Fleetwood, the share price is under pressure and JP Morgan thinks there is more pain to come near term.

The broker is Neutral on most of the others in the group, namely Miclyn Express ((MIO)), Matrix Composites & Engineering ((MCE)), Programmed Maintenance Services ((PRG)), WDS ((WDS)) and Norfolk Group ((NFK)). In the case of Miclyn and Norfolk, these are in the midst of corporate action and there is no material upside to the current price. Programmed has an uncertain FY14 outlook while the broker is cautious about WDS' exposure to demand for coal work. Value may be emerging for Matrix but the risks are too much at present for the broker to be confident.

Small cap retailers were under Deutsche Bank's microscope recently. Kathmandu ((KMD)) outperformed peers in the third quarter of FY13 and does not face the near term headwinds that other small cap apparel retailers face. There are multiple earnings growth drivers and like-for-like sales upside. The company is also structurally better positioned compared with peers and, hence, Deutsche Bank comes out with a Buy rating on this company.

The inventory discounting that's largely expected to follow from Target's ((WES)) announcement of an inventory overhang this winter will filter through to the smaller caps. Myer's ((MYR)) stocktake sale will concern Premier Investments ((PMV)) and Pacific Brands ((PBG)), whereas Target's inventory is a concern for Specialty Fashion ((SFH)) and Pacific Brands, in the broker's view. The lower Australian dollar should help vertically integrated retailers as it reduces consumer purchasing power globally, but hedging policies create a lagged impact on the cost of goods sold for US dollar purchases. Deutsche Bank does not expect the full impact for Kathmandu, Premier Investments, Pacific Brands and Specialty Fashion until 2015 and the quantum is impossible to estimate.

Citi's May survey of Australian residential home builders has shown more than three quarters of the 39 respondents intend to build more homes in FY13 against FY12 while 62% reported an improvement in orders compared with six months ago. The analysts emphasise the sample size was small, and confined to the four states Victoria, NSW, Queensland and Western Australia, but more than half were confident about activity levels in the next 12 months and only 11% had a negative view. The biggest challenge facing the residential housing sector is economic conditions, both domestic and international.

Citi found that owning a strong brand portfolio is strategically important in getting solid market share in various products. It's a case of... leading brands lead. The so-called category killers dominate market share. GWA Group's ((GWA)) door brand, Gainsborough, is an example, enjoying market share of around 76%.  The number of brands are increasing, suggesting more imports. Overall, GWA's broad brand portfolio appears to have weakened. Caroma - bathroom fittings - is perhaps the most resilient. DuluxGroup ((DLX)) brands were stronger than expected. Perhaps because of the company's greater focus on renovations against new building.
 

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article 3 months old

Nothing Much Going Right For DJ’s

- March quarter sales poor
- Weather unfriendly, sentiment weak
- Brokers question the push for margin growth
 

By Greg Peel

Autumn arrived in Australia in May. Forces more powerful than the calendar decided summer should stretch into March and April this year. It made for some cracking weekends, but it meant ladies were not encouraged to snap up this year’s cool weather fashions in any hurry.

Department store proprietor David Jones ((DJS)) felt the impact of lower than expected autumn sales, in women’s apparel in particular. The company also suffered from ongoing weak consumer sentiment across the range of products, particularly in the dour home wares segment. DJ’s was not alone, with competitors across the spectrum also suffering from weak general sentiment and the warm autumn.

In retrospect, it was not a good time for the company to put its foot down on discounting. Having suffered through a long discounting war phase, DJ’s management decided this year to focus on margins rather than sales. This means not trying to match discounting at other stores, and also keeping a tight lid on inventories. Such a strategy has its advantages and disadvantages.

The first disadvantage is that DJ’s failure to discount meant customers who did engage in autumn buying went elsewhere. Sales revenue declined a total of 2.2% in the March quarter and 3.4% on a like-for-like basis. Comparables can’t be blamed, given LFL sales fell 3.1% last March quarter. The fact that DJ’s kept its winter inventories lean ahead of the season should be an advantage, but the problem is the company’s competitors have not been quite so sensible. Another discount war is expected to ensue in the June quarter, suggesting DJ’s may once again struggle to sell what inventory it has.

Management has announced it will compete with, but not match, price discounting. That said, the new strategy of focusing on margins rather than sales will continue.

The strategy involves various elements. One is to place less focus on home wares and discontinue extraneous, low margin lines like music and DVDs. A shift to higher quality lines and a tight control of costs, including promotions and sales events, should then help to improve gross margins. Thereafter, it becomes a story of hope. Eventually, it is assumed, Australian consumer sentiment will begin to cycle back up again. If so, DJ’s will be well leveraged to such an improvement.

Credit Suisse believes the weak performance from DJ’s of late smells mostly of cyclicality. If the RBA is to cut further, this would provide a boost to sentiment, and sentiment also has more chance of improving once the federal election is out of the way. With a combination of expected discounting ahead from competitors, an RBA cut not being a certainty now, the Aussie's correction and the election not being until September, any cyclical upswing is looking more like a 2014 story.

Deutsche Bank is not convinced on the gross margin story. Sales continue to deteriorate and despite cost controls, the company’s fixed cost base is formidable. Deutsche is forecasting a second half margin increase of 140 basis points, but suggests this may not be enough to provide positive earnings growth. JP Morgan is only one broker to note the planned halving of Financial Services in FY14, putting even more pressure on margin growth to carry earnings growth. BA-Merrill Lynch suggests that if DJ’s maintains its strict margin focus, the rate of sales decline could accelerate in what may well be a challenging June quarter.

CIMB is not even convinced FY14 will see a turnaround. The broker argues the market is too optimistic in believing margin improvement can lift company earnings in the face of the loss of Financial Services earnings, and is sitting on below-consensus forecasts. DJ’s weaker than expected sales result has prompted earnings forecasts downgrades across the board from brokers.

Macquarie does not believe management knows what it’s doing. “It remains clear to us that DJS has little data on, or insights into, who its customers are and why they shop,” say the analysts. “Given a period of under investment under previous stewardship, DJS now has to play catch up. A lack of basic retailing metrics such as foot traffic through to detailed customer insight by way of a loyalty program have resulted in DJS having a substantial ‘Big Data’ gap in its retailing capability”.

The company is now investing in some Big Data technology, but it will take time for any benefit to flow.

Following the sales result, the consensus price target for David Jones in the FNArena database has fallen to $2.47 from $2.73. Five out of eight brokers have maintained Sell or equivalent ratings on the stock. Despite reservations, Macquarie has upgraded to Neutral from Underperform, suggesting the market has already captured the weak story in the share price.

UBS (Neutral) notes that DJ’s has now fallen from a 10% forward earnings premium to rival Myer ((MYR)) to a 10% discount, and is trading at a 15% discount to consumer discretionary sector peers. While this might otherwise give UBS cause to apply a Buy rating, the broker is wary of execution risk for the company’s shift in strategy. JP Morgan believes that risk is now moderating, hence the broker’s Neutral rating.

Citi suggests that, as DJ’s is a high-end discretionary retailer, its sales trajectory is not so closely correlated to general consumer sentiment but more closely correlated to wealth. This should have provided a boost in the March quarter given stock market and house price rises, but then the weather stuffed things up, exacerbating DJ’s decision not to discount. It’s an opportunity missed, Citi believes, given “wealth effects are likely to be more muted over the next 12 months”.

Citi thus maintains its Sell rating.

Outside of the database, Goldman Sachs also retains Sell. Morgan Stanley, on the other hand, is a stand-out in maintaining an Overweight rating. The broker is a believer in the margin growth story, points out the autumn weather thing is just an uncontrollable set-back, and is impressed with the rapid growth in on-line sales now that DJ's has caught up to the 21st century.


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article 3 months old

A Challenging Season For Myer

-Sales and consumer sentiment soft
-Pressure on margins from discounting/costs
-Online gaining traction
 

By Eva Brocklehurst

Department store retailers hold a mirror to householder sentiment in terms of the goods they sell - homewares, apparel and cosmetics. Sentiment picked up at the start of 2013 but appears to have softened at the end of the March quarter and consumers do not appear well disposed towards shopping. Is it the looming election? Is it the warmer-than-usual autumn? On both counts, by the time Myer ((MYR)) has delivered the FY13 earnings report in September, it will be better understood.

Myer reported soft sales growth in the March quarter, up just 0.5%. The start of the year was positive but then it all went flat in March. This trend continued into April. Macquarie flags the fact that hard goods and homewares declined by about the same amount that apparel and cosmetics gained - around 2%. Myer has a clean inventory position, unlike competitor Target ((WES)), and is prepared to time clearances in line with the traditional stocktake sales at the end of June.

Where the retailer differs from Target is inventory management. The warm autumn did not lead to an excess of seasonal inventory. Nevertheless, the perceived need for Target to mark down items will put pressure on Myer to do the same. The company is resisting this somewhat, but will likely use the end financial year stocktake to flush out the bargain hunters. Myer may be confident in its inventory management systems but brokers are keenly aware that any major discounting will pressure earnings, given the tough consumer environment.

Store numbers may have increased but it is the inability to materially grow sales that concerns JP Morgan. The broker is the more negative of those covering the stock on the FNArena database and has an Underweight rating. The lack of sales momentum is partly from heightened competition but, in the main, the consumer hasn't been that willing to part with dollars. Management is forgoing margin enhancement to pick up better top line growth and the company is expecting to implement a new order management system by October which it hopes will deliver real productivity benefits and improve the experience for customers.

The cost of doing business is rising and is a considerable challenge for discretionary retailers. Gross profit growth has been the focus of attempts to offset this challenge but remains modest, in JP Morgan's view, such that earnings declines are likely to have accelerated in the second half. Improvements in managing mark-downs should lead to gross margin expansion. The broker concedes there is evidence this is happening, with mark-downs falling below 10% of sales in the first half, from a peak of over 12%.

JP Morgan believes consolidation of overseas factories will also lead to incremental gross margin expansion over the next few years. The falling Australian dollar does pose medium term risk to sourcing cost pressures but Myer has hedge cover above parity for the next 12 months and, at present, less than 20% of product is directly sourced. Myer suggests sourcing cost pressures from a falling Australian dollar would largely be compensated for by benefits of the consolidation, leading to an improved bargaining position.

Growth in online sales has been over 200% but that's off a very low base and JP Morgan suspects a significant proportion is replacement of in-store sales rather than incremental sales. Macquarie flagged the Myer One loyalty program, which, while not necessarily bringing in new customers, is better targeting those the retailer already has, enabling more sales. Morgan Stanley is quite happy that gross margins will continue to move higher in the second half, while the online offering is moving closer to break-even. The broker forecasts Myer will generate online sales of around $70 million in FY14, up from $40m in FY13. Break-even is seen around $50m. Following a period of significant investment in online, Morgan Stanley finds it heartening that this will become a driver of profits. Still, the positive aspects are not outweighing the concerns over the contagious nature of competitor discounting.

CIMB has moderated its rating to Neutral from Outperform and sees some risk that gross profit targets may not be met in the second half. The stock is still one of the preferred exposures to a domestic cyclical recovery - when that happens. The company has been open about the costs faced in the second half and the required gross profit expansion needed to offset this. CIMB believes this margin will have to increase substantially. Hard to accomplish in what appears to be a softening trading environment. The company has confirmed a shift in the mix of sales away form wholesale brands toward concessions which implies better margins. The private label penetration has also been helped by the growth in concessions. Consumer confidence is just what's missing, in CIMB's view.

Credit Suisse was the most upbeat and has gone the other way to CIMB, upgrading the stock to Outperform from Neutral because of recent share price weakness. The broker hailed the more positive autumn inventory story - no overhang like Target - and noted stronger sales growth in cosmetics and clothing in the quarter. Refurbishment impacts were also lower than the broker expected. Myer has thee stores being refurbished over the next 12-18 months and this impact will peak in the first half of FY14. Sales drag from this is estimated at two percentage points in FY14. Myer is a reasonably priced opportunity, in Credit Suisse's view. Moreover, the stock should benefit form improving consumer confidence after the federal election has passed. Interest rate reductions should also lift household spending over time.

Finally, Myer is trading on 12.5 times the broker's earnings forecasts for FY13 and offers a good dividend yield. In this respect, on the database, the dividend yield is 6.9% for FY13 consensus estimates and 7.2% for FY14. For Citi, the clean inventory may place it in a better position but discounting is still likely to escalate. Sluggish conditions are expected to continue and the broker finds underlying demand is even softer. The recent decline in the share price reflects the challenging nature of the retail sector and the company's low earnings growth profile. Citi targets a price of $2.60 and view the fair value price/earnings ratio at 10.6 times FY14.

The consensus target price on the FNArena database is $2.90, having ratcheted down five cents over the past week, and suggests 10.1% upside to the last share price. Targets range from $2.46 (JP Morgan) to $3.31 (Macquarie). In sum, the database is balanced, presenting two Buy (or equivalent) ratings, four Hold and two Sell.
 

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article 3 months old

Target Downgrade Sparks Discounting Fears

-Warm autumn affects apparel sales
-Inventory clearance and discounting likely
-Target likely to trigger "Sales" by others
-Shopping Centre operators affected
 

By Eva Brocklehurst

Retailers are still negotiating troubled waters. Wesfarmers' ((WES)) has downgraded earnings expectations for Target stores and sent another shiver through the ranks of retail analysts. It was a warmer-than-usual autumn so people were not buying coats and cardies. Perhaps the fashion trends this year are too subdued. Too much black this winter. Everyone has something in black in the back of the wardrobe.

Of more importance, retailers were not jumping in so fast this time to discount items on a poor start to the season. Maybe shoppers have been spoilt by frequent discounting and are playing a game of bluff with retailers. Who'll win? Probably the shoppers as the first retailer to capitulate will trigger a chain reaction in discounting.

UBS has received trade feedback which suggests April was soft and it affected retailers of apparel. The broker's analysis shows that for every 1% variance in peak temperature there is a relative 4% underperformance in apparel sales. UBS has trimmed earnings estimates for department store and apparel retailers by 1-2% for FY13 but emphasises that earnings are still expected to grow, just more modestly. There's just so much out there to support renewed spending, such as low interest rates, rising confidence and improving housing and equity market prices.

There's a raft of excuses for why the season started poorly, including the upcoming election, but Citi is not buying them all. For Target, it's a case of  too much inventory. The excess could affect earnings by $40-50 million if cleared at cost, so this explains half  Target's $100 million earnings downgrade. The rest is about restructuring costs and "shrinkage" - which leads Citi to question how inventory is managed at Target. UBS suspects Target is carrying $70m in excess stock which will need to be cleared in coming months. This will lead to heightened discounting and put pressure on the industry in the second half.

CIMB is also concerned about the increase in inventory shrinkage, which suggests systems and process issues that may not be easily corrected. The broker believes Target's business model may have to be re-visited. Target's earnings reduction may be to Kmart's gain, perhaps. The other of Wesfarmers' discretionary retailers is expected to grow earnings. Kmart has grown substantially over recent years based on high volume, low margin business, but Citi suspects this has hurt Wesfarmers overall.

Target is between a rock and a hard place. The chain is in the stages of re-positioning up the ladder as a discount department store. For Citi, it is unclear how the chain will build credibility and take market share off Myer ((MYR)) and specialty stores. It either proceeds with this or goes the other way - but then it would bump into Kmart's position on the discount ladder.

UBS estimates marking down prices and the cost of doing business accounts for a substantial amount of decline in second half operating margins for retailers. This is outside the Target-specifics of inventory shrinkage and restructuring. The broker suspects that heightened promotional activity by a large operator sends a message to others in the sector to increase the amount of discounting. David Jones ((DJS)) is expected to have suffered from the unusual April warmth. While not being a competitor to Target, UBS estimates David Jones generates 40% of turnover from seasonal items and the need to discount is likely to adversely impact second half sales and gross margins. Myer competes more with the discount department stores and consequently discounting is likely to impact margins.

A third retailer that might be getting signals from Target is Pacific Brands ((PBG)). While not competing in the store sense, and supplying less seasonally sensitive items, there could be some spill from the discounting and so UBS has also revised down earnings expectations in that quarter. The specialty retailer that could be affected is Premier Investments ((PMV)), with abnormal weather and discounting by Target impacting store margins and volumes.

BA-Merrill Lynch suspects there's been an over-reaction in the market to the news and that Wesfarmers' coal business and Kmart will more than offset the earnings reduction from Target. In the broader market too, UBS believes further earnings downgrades are of a short term nature and should be seen as buying opportunities. 

Regardless of the extent weather, fashion and all else is having on the retailers, they are a powerful link in the consumer chain. If apparel retailers are suffering from poor sales then the re-leasing spreads are pressured for those operators of discretionary retailer-dominated shopping centres. UBS notes Westfield Group's ((WDC)) operating metrics deteriorated in the March quarter and lease deals declined. The broker is therefore inclined to post a Sell rating for discretionary retailer-anchored investments, specifically Westfield Retail ((WRT)),  CFS Retail Property ((CFX)) and GPT ((GPT)). Westfield Group doesn't fit this bill because of the exposure to the US and capital management potential.
 

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article 3 months old

Weekly Broker Wrap: Oz Retailers Under Attack

-Luxury brands to expand here
-Foreign labels raise competitive stakes
-Construction and engineering activity declines
-Coal exports to rise in June quarter
 

By Eva Brocklehurst

Luxury goods spending in Australia is growing, which may come as a surprise given the subdued economy and the uncertainty ahead of the federal election. Citi asks why and finds there is scope for growth in luxury brands here, but it could be at the expense of the traditional luxury goods retailers - department stores. Citi estimates the luxury market can double in five years but David Jones ((DJS)), Oroton ((ORL)) and Myer ((MYR)) might lose share if they fail to invest in their stores.

Australian luxury goods spending per capita is less than half that of the US. The market is immature in Citi's view. Many global brands have only established a footprint here quite recently, although the demand is there. Tiffany's actually has higher sales per capita in Australia compared with the US. Citi expects the number of global brand luxury stores will rise to 300 in the next five years from the current 130. In terms of the statistics, luxury goods have grown at a multiple of three times GDP.

Sales are driven by the growth in high net worth individuals, and tourist spending. The definition of high net worth used by Citi is income over $150,000 per year. These individuals shop for premium goods (one step below luxury) and aspire to luxury. Those earning over $1m a year are clearly the target market for luxury brands. Luxury goods sales are expected to double to $4.4 billion in five years and the luxury goods retailers could take market share from the department stores, the traditional purveyors of luxury brands.

Assuming 10 brands develop 7-10 stores each there is $400-500m in potential additional luxury sales in Citi's view. There are at least 15 major luxury brands that do not have their own Australian stores, yet. They include De Beers, Dolce & Gabbana, Lanvin, Saint Laurent, Alexander McQueen, Celine and Marc Jacobs. Citi expects sales to be lost from David Jones as these brands provide a better store experience in their flagship locations. Moreover, luxury goods can take market share from other categories - trading up - and this will be a further negative for department stories unless they can capture more distribution points for these luxury brands.

Citi sees the need for Australian premium brands such as David Jones, Oroton and Sass & Bide (owned by Myer) to invest more. They have to be prepared to compete with the newcomers on the full spectrum of retailing such as price, range, service and in-store experience. Based on their existing strategies, Citi expects Australian retailers will lose market share and has Sell ratings on the above three retailers.

Morgan Stanley has taken a closer look at the Australian apparel brands and, in the same vein, finds global brands are appearing in increasing number and having an impact. While the store roll-outs have been slower than expected their competitive pricing is starting to re-set Australian benchmarks. The most exposed to this threat is Premier Investments' ((PMV)) Just Group. Morgan Stanley has downgraded PMV to a Sell rating. The broker finds 10 incoming global brands are in direct competition with 80% of Just Group's business. Continued pricing pressures will likely weigh on margins longer term. Moreover, the analysts note that four of Just Group's five apparel brands have lowered shelf prices on women's dresses compared with a year ago. These may not equate to final sale prices but the quantum of change has meaningful implications.

Of the brands that are already here, Morgan Stanley includes Zara, Gap, Topshop, Hollister, Miss Selfridge and Michael Kors. H&M, Uniqlo and River Island are coming. Morgan Stanley expects sales from these foreign brands to expand to $2.1 billion by 2018, representing 6.5% of the Australian apparel market. Incumbent retailers are responding, the analysts note, but they remain significantly more expensive than the incoming labels. The price premiums are expected to reduce.

The impact for those other than Just Group is greater for Myer than for David Jones, in Morgan Stanley's view. David Jones' private label doesn't overlap with this market whereas Myer's does. The analysts believe it will become more difficult for Myer to expand the private label offering as it competes at similar price points with the global brands. In contrast, David Jones has significant margin opportunity ahead. The retailer is already shifting the mix to 10% of sales from private label, from the current 3.5%. Pacific Brands ((PBG)) is seen as evenly balanced in terms of risks/rewards from the increased competition. The company is seeking to increase its direct-to-market approach and reduce the reliance on the powerful retailers but it may become more difficult in future for Pacific Brands to establish its own retail network, in Morgan Stanley's opinion.

On to construction activity. Citi finds there's been a notable deterioration in non-residential and engineering work. Together these sectors represent 75% of construction work in this country. Non-residential is expected to fall 17% over the next three years and the analysts have reduced forecasts for spending, to contraction of 11% in FY13, 5% in FY14 and 1% in FY15. The recovery in construction is expected to take longer because of a multitude of factors, such as weak tenant demand, compression of developer returns, difficulty in obtaining finance and limited foreign investment.

Engineering construction is expected to contract 10% over FY14-15, driven by a weaker outlook for resource-related rail and port capex, lower telco spending under the Coalition's NBN plan, and lower power asset growth. Government asset sales and super fund investment will play an increasing role in funding infrastructure, but given the long lead times and allocation issues Citi believe it won't be until FY16 that the next wave of transport projects ramps up. Associated with this decline in construction activities, the broker has downgraded earnings expectations for building materials stocks by up to 5% for FY13-15. Contractor earnings forecasts have also been cut. The best stock to emerge from all of this downgrading is Downer EDI ((DOW)) and Citi's least favoured is Boral ((BLD)).

Coal majors in Australia have increased production by 16.4% in the March quarter. Deutsche Bank observes that all four international big caps - BHP Billiton ((BHP)), Rio Tinto ((RIO)), Anglo American and Xstrata -  have recorded solid double digit growth for the quarter despite heavy rain. Volumes at the ports were up by 6.7% in the quarter. This result is made even more impressive by the fact that the Queensland rail network around Gladstone was closed in February because of floods. Of significance is the substantial increase in production relative to exports. Production is a useful leading indicator, in Deutsche Bank's view, and points towards strong export volumes in the June quarter. The broker rates the two key coal conveyors, Asciano ((AIO)) and Aurizon ((AZJ)), as a Buy.
 

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article 3 months old

Time To Exit Retail

By Michael Gable 

While the market continues show signs of confusion, I am discovering further clarity in the direction of specific stocks. QBE ((QBE)) we looked at last week and that appears to be breaking out of its continuation pattern now. BHP Billiton ((BHP)) I have spoken about for a month now finding good support here. While it hasn’t rallied too far yet, it has managed to hold above $30, and recent price action suggests a nice bounce from current levels. The other sector I see under pressure is discretionary retail. Myer ((MYR)) in particular is shaping up to be a good shorting opportunity here and I will be devising an options strategy to profit from the downside. Have a good look at MYR as I feel this is the trade of the week and can provide a very good opportunity for investors looking to hedge some downside.

Myer


 

Myer has almost doubled in value from its lows in June last year. Rate cuts have helped improve sentiment slightly and retail sales earlier this year were indicating that the consumer was slowly starting to spend money again. However, up here the stock is almost priced to perfection and it won’t be able to tolerate any setbacks. When we look at the chart, the bearish engulfing pattern (circled) and the divergence with the RSI suggest to me that the market is looking for reasons to exit the stock.

What could further derail the MYR rally? Retail sales for March were down -0.4% when the market was expecting them to be +0.2%. The other major point to note is the weather. March has been unseasonably warm and if we don’t get a cold snap in the next week or two, then we are going to see a lot of winter apparel get discounted. This pressure on margins will hurt the retailers just when they thought they were finding their feet. As a result, previous company guidance may need to be downgraded. As a result, I can see weakness in the discretionary retailers. Myer in particularly has downside to $2.60 and then further support at $2.40.
 

Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
 
Visit Michael Gable's website at  www.michaelgable.com.au/.

After leaving Macquarie Bank's Securities Group in 2008 after many years of service, Michael has gained a highly regarded reputation in the financial services industry. As a Private Client Adviser with Novus Capital, Michael has become a popular live commentator and analyst for Sky News Business Channel’s “Your Money, Your Call” program. He is also the author of the weekly stock market report “The Dynamic Investor”.

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management.

Michael deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (Rep. No. 376892) of Novus Capital Limited AFSL 238168 ACN 006 711 995. Michael Gable and Novus Capital Limited, their associates and respective Directors and staff each declare that they, from time to time, may hold interests in securities and/or earn brokerage, fees, interest, or other benefits from products and services mentioned in this website. This website may contain unsolicited general information, without regard to any investor's individual objectives, financial situation or needs. It is not specific advice for any particular investor. Before making any decision about the information provided, you must consider the appropriateness of the information in this website or the Product Disclosure Statement (PDS) or Financial Services Guide (FSG), having regard to your objectives, financial situation and needs and consult your adviser. Any indicative information and assumptions used here are summarised and also may change without notice to you, particularly if based on past performance. Michael Gable and Novus Capital Limited believes that any information or advice (including any securities recommendation) contained in this website is accurate when issued but does not warrant its accuracy or reliability. Michael Gable and Novus Capital Limited are not obliged to update you if the information or its advice changes. Michael Gable and Novus Capital Limited and each of their respective officers, agents and employees exclude to the full extent permitted by law, all liability of any kind, in negligence, contract, under fiduciary duties or otherwise, for any loss or damage, whether direct, indirect, consequential or otherwise, whether foreseeable or not, to the extent arising from or in connection with this website.

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