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, on the Foils</h2>
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<h2>RESEARCH&nbsp;INSIGHTS</h2>
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<p>The Warehouse (WHS) provided yet another upgrade to its earnings guidance, following strong January trading with better than expected gross margin. The buoyant consumer backdrop has provided a significant tailwind for WHS, lifting 1H21 NPAT guidance three times in the last three months. We expect WHS and the retail sector to continue to benefit from border closures and reallocation of travel spend in the near-term. However, we currently assume sales momentum slows into 2H21E as it cycles tougher comparable periods, and as vaccine news may lead to income preservation for travel. However, should sales momentum continue, the high degree of operating leverage could provide material upside to near-term forecasts.​​​​​​​​​​​​​​</p>
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<h3>What's changed?</h3>
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<li><strong>Earnings</strong>:&nbsp;We lift our FY21E underlying NPAT forecast to NZ$150m from NZ$131m (up +14%). 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). We expect an update to WHS’s dividend policy when it announces its 1H21 result in March.</li>
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<h3>Another month, another upgrade</h3>
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<p>WHS lifted 1H21 Adjusted NPAT guidance +NZ$20m (c. +22%) to in excess of NZ$110m (previously in excess of NZ$90m). This follows two prior upgrades 1) December 2020 guidance of in excess of NZ$70m, and 2) January 2021 guidance of in excess of NZ$90m.&nbsp;WHS lifted its gross margin expectations c. +185bp above the prior comparable period (1H20 33.6%, prior guidance +170bp), as tight inventory positions and motivated consumers reduced discounting activity across the sector.</p>
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<h3>WHS will report 1H21 results on 25 March&nbsp;</h3>
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<p>WHS is set to announce its interim result on 25 March 2021. While the reporting period will be defined by strong sales and operating leverage, we expect investor focus to be on operating expenses. WHS has targeted operating cost efficiencies through its transformation programme, with evidence of improvements a positive signal for more enduring&nbsp;margin gains.</p>
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<h3>Balance sheet well positioned</h3>
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<div id="m_2138635794895368291ia6sg">
<p>WHS also provided updated balance sheet commentary, indicating that it expects to report a 1H21 net cash position of NZ$183m (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 boosted by lower inventory levels (FY20 c. -NZ$100m lower than the prior period) due to supply chain congestion, with possible inventory shortage risk signalled in 4Q21. We expect the working capital position will need to reverse as supply chains normalise, although we note scope for product rationalisation. ​​​​​​​</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>
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<div><strong>Ashton Olds CFA</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>
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The Warehouse Group Wind in its Sails, on the Foils


RESEARCH&nbsp;INSIGHTS

The Warehouse (WHS) provided yet another upgrade to its earnings guidance, following strong January trading with better than expected gross margin. The buoyant consumer backdrop has provided a significant tailwind for WHS, lifting 1H21 NPAT guidance three times in the last three months. We expect WHS and the retail sector to continue to benefit from border closures and reallocation of travel spend in the near-term. However, we currently assume sales momentum slows into 2H21E as it cycles tougher comparable periods, and as vaccine news may lead to income preservation for travel. However, should sales momentum continue, the high degree of operating leverage could provide material upside to near-term forecasts.​​​​​​​​​​​​​​


What's changed?



Earnings:&nbsp;We lift our FY21E underlying NPAT forecast to NZ$150m from NZ$131m (up +14%). 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). We expect an update to WHS’s dividend policy when it announces its 1H21 result in March.



Another month, another upgrade


WHS lifted 1H21 Adjusted NPAT guidance +NZ$20m (c. +22%) to in excess of NZ$110m (previously in excess of NZ$90m). This follows two prior upgrades 1) December 2020 guidance of in excess of NZ$70m, and 2) January 2021 guidance of in excess of NZ$90m.&nbsp;WHS lifted its gross margin expectations c. +185bp above the prior comparable period (1H20 33.6%, prior guidance +170bp), as tight inventory positions and motivated consumers reduced discounting activity across the sector.


WHS will report 1H21 results on 25 March&nbsp;


WHS is set to announce its interim result on 25 March 2021. While the reporting period will be defined by strong sales and operating leverage, we expect investor focus to be on operating expenses. WHS has targeted operating cost efficiencies through its transformation programme, with evidence of improvements a positive signal for more enduring&nbsp;margin gains.


Balance sheet well positioned


WHS also provided updated balance sheet commentary, indicating that it expects to report a 1H21 net cash position of NZ$183m (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 boosted by lower inventory levels (FY20 c. -NZ$100m lower than the prior period) due to supply chain congestion, with possible inventory shortage risk signalled in 4Q21. We expect the working capital position will need to reverse as supply chains normalise, although we note scope for product rationalisation. ​​​​​​​



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





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



The Warehouse Group: Wind in Its Sails, on the Foils