-Main risk to
-Margin recovery expected through supply chain efficiencies
-International and company's private-label expansion should provide further upside
The company re-confirmed FY22 guidance at its AGM and is confident there should be no further significant lockdowns in the second half. The first half is expected to be softer, nevertheless.
Morgans expects the first half result will be materially below the prior corresponding at around -15%, stemming from higher overheads, duplication costs and material operating de-leverage in the first quarter.
Still, the broker looks past this and believes improving conditions and efficiencies will come to the company's aid, along with longer-term geographic expansion and acquisitions.
The first half is still tracking ahead of Macquarie's expectations, as an even greater impact from the lockdowns in NSW/Victoria was expected. Around 70% of the store network was affected by lockdowns while those areas that avoided lockdowns performed ahead of expectations.
Across the business, trade revenue was up 2%, retail/Autobahn revenue down -12% and specialist wholesale revenue up 7%. Given the significant disruption caused by lockdowns, the main risk to the broker's view is... more lockdowns, and any softening of demand in the vehicle aftermarket.
Citi forecasts trade and specialist wholesale sales to accelerate to growth of 11% and 9%, respectively, over the second quarter as demand for servicing increases and consumers take more domestic holidays.
First quarter revenue was flat yet a recovery was evident after July revenue was down -5%. The highlight were trade sales, while wholesale was also robust. This offset weaker NZ and retail sales growth.
This week's trading update was slightly ahead of
Citi also notes margin headwinds are occurring amid duplication of costs associated with the transition to the Victorian distribution centre. Nevertheless, over the medium term margin expansion can occur through supply chain efficiencies.
Expansion
The broker points out petrol and motor vehicle service expenditure intentions over the next twelve months are among the most elevated categories in its recent Australian consumer survey, although the broker acknowledges there may be some uncertainty around the sustainability of automotive equipment sales.
Rolling out stores, private-label penetration and international expansion are highlights for Citi too. New car supply issues are also resulting in consumers holding onto their current cars for longer.
Morgans remains cautious but acknowledges the resilience of the business and the potential that exists once operating conditions normalise. Sufficient upside has emerged for the broker to upgrade to Add.
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