FY19 results missed forecasts. The company has announced an equity raising of $173m. Credit Suisse suspects this will exacerbate investor debates regarding gearing. The franchisee segment was affected by weaker profitability and also increased expenditure on compliance.
Credit Suisse recognises that the overwhelming majority of the impact of this is cyclical and will reverse in an improving economy. The broker also notes that Harvey Norman’s profitability typically lags its franchisees because of working capital arrangements.
Offshore market have supported further store-based expansion, with the company holding 90 stores in offshore markets as of FY19 and targeting another 21 by the end of FY21, with Malaysia a particular focus. Neutral rating maintained. Target is raised to $4.37 from $4.28.
Target price is $4.37.Current Price is $4.43. Difference: ($0.06) – (brackets indicate current price is over target). If HVN meets the Credit Suisse target it will return approximately -1% (excluding dividends, fees and charges – negative figures indicate an expected loss).