New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Warehouse Group Limited / Equity Bottom-Up

<h2>The Warehouse Group<br>Wind in its Sails</h2>
<p></p>
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<h2>RESEARCH&nbsp;INSIGHTS</h2>
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<p>The Warehouse (WHS) upgraded its 1H21 earnings guidance, highlighting strong sales as consumer momentum continued through the important holiday trading period. A buoyant consumer backdrop, exposure to favourable retail categories, and lower sector discounting activity supported further earnings growth. WHS has issued 1H21 earnings guidance of underlying NPAT in excess of NZ$90m (Forsyth&nbsp;Barr NZ$93m), pre the re-payment of the government wage subsidy.</p>
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<h3>What's changed?</h3>
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<div id="m_-6226862951693061330iuqx6o-2">
<ul>
<li><strong>Earnings</strong>:&nbsp;We lift our FY21E underlying NPAT forecast to NZ$131m from NZ$92m (up +43%). Our forecasts assume sales slow in 2H21 (+2% growth on 2H19), with upside should the current consumer momentum continue. We make limited changes to later forecast years.</li>
<li><strong>Dividend</strong>:&nbsp;We lift our FY21E dividend forecast +57% to 22cps (58% payout).&nbsp;We expect an update to WHS’s dividend policy when it announces its 1H21 result in March.&nbsp;</li>
</ul>
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<h3>Christmas better than expected</h3>
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<div id="m_-6226862951693061330iiwfgd-2">
<p>WHS lifted 1H21 Adjusted NPAT guidance +NZ$20m (c. +30%) to in excess of NZ$90m&nbsp;following strong trading through the Christmas period, continued momentum into January, and reflecting further confidence in its short-term outlook. Red Sheds and Noel&nbsp;Leeming&nbsp;remain the standout performers, likely&nbsp;benefitting&nbsp;from favourable category exposure. In addition, its online channel likely performed well against a weak prior period, which had&nbsp;been impacted by&nbsp;fulfillment issues.</p>
</div>
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<h3>Operating leverage key driver of earnings upgrade</h3>
</div>
<div id="m_-6226862951693061330iy5aol-2">
<p>WHS reiterated its gross margin expectations, c. +170bp above the prior comparable period (1H20 33.6%), as tight inventory positions and motivated consumers reduced discounting activity across the sector. We estimate&nbsp;the updated 1H21 guidance implied sales c. +5% ahead of our prior expectations, with the&nbsp;high degree of operating leverage, particularly through Red Sheds, driving the significant earnings upgrade.</p>
</div>
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<h3>Balance sheet well positioned, although inventory levels a possible risk</h3>
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<div id="m_-6226862951693061330i0y7d">
<p>WHS reiterated balance sheet commentary, indicating it expects to report a 1H21 net cash position in excess of FY20 (NZ$168m), after having repaid the government wage subsidy of NZ$68m. Whilst its cash balance is in part driven by earnings strength, it is also supported by lower inventory levels (FY20 c. NZ$100m lower than the prior period). We expect the working capital position to largely reverse as supply chains normalise, although with possible inventory shortage risk signalled in 4Q21.&nbsp;</p>
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<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
<div></div>
</div>
</div>
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<div>
<div><strong>Ashton Olds</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
</div>
</div>

The Warehouse Group Wind in its Sails


RESEARCH&nbsp;INSIGHTS

The Warehouse (WHS) upgraded its 1H21 earnings guidance, highlighting strong sales as consumer momentum continued through the important holiday trading period. A buoyant consumer backdrop, exposure to favourable retail categories, and lower sector discounting activity supported further earnings growth. WHS has issued 1H21 earnings guidance of underlying NPAT in excess of NZ$90m (Forsyth&nbsp;Barr NZ$93m), pre the re-payment of the government wage subsidy.


What's changed?



Earnings:&nbsp;We lift our FY21E underlying NPAT forecast to NZ$131m from NZ$92m (up +43%). Our forecasts assume sales slow in 2H21 (+2% growth on 2H19), with upside should the current consumer momentum continue. We make limited changes to later forecast years.
Dividend:&nbsp;We lift our FY21E dividend forecast +57% to 22cps (58% payout).&nbsp;We expect an update to WHS’s dividend policy when it announces its 1H21 result in March.&nbsp;



Christmas better than expected


WHS lifted 1H21 Adjusted NPAT guidance +NZ$20m (c. +30%) to in excess of NZ$90m&nbsp;following strong trading through the Christmas period, continued momentum into January, and reflecting further confidence in its short-term outlook. Red Sheds and Noel&nbsp;Leeming&nbsp;remain the standout performers, likely&nbsp;benefitting&nbsp;from favourable category exposure. In addition, its online channel likely performed well against a weak prior period, which had&nbsp;been impacted by&nbsp;fulfillment issues.


Operating leverage key driver of earnings upgrade


WHS reiterated its gross margin expectations, c. +170bp above the prior comparable period (1H20 33.6%), as tight inventory positions and motivated consumers reduced discounting activity across the sector. We estimate&nbsp;the updated 1H21 guidance implied sales c. +5% ahead of our prior expectations, with the&nbsp;high degree of operating leverage, particularly through Red Sheds, driving the significant earnings upgrade.


Balance sheet well positioned, although inventory levels a possible risk


WHS reiterated balance sheet commentary, indicating it expects to report a 1H21 net cash position in excess of FY20 (NZ$168m), after having repaid the government wage subsidy of NZ$68m. Whilst its cash balance is in part driven by earnings strength, it is also supported by lower inventory levels (FY20 c. NZ$100m lower than the prior period). We expect the working capital position to largely reverse as supply chains normalise, although with possible inventory shortage risk signalled in 4Q21.&nbsp;



Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255





Ashton Olds
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



Warehouse Group Limited

The Warehouse Group: Wind in Its Sails