-Factors fuelling demand could not be more favourable
-Retail segment strong but likely to have peaked
-Material opportunity for consolidation in truck parts
Credit Suisse considers the factors fuelling domestic consumption could not be more favourable. These include weak new car sales, avoidance of public transport/increased use of private vehicles and restrictions on international aviation.
The broker expects consumer demand for the company's consumables will remain heightened over the next 18 months, and places
Moreover, the company's balance sheet is healthy and provides options for growth and consolidation. While the broker expects retail business will eventually soften it will likely be from a much higher base.
Morgan Stanley expects that the second half will be "choppy" but agrees strength in market demand will provide upside to gross margin assumptions as there is very little need for aggressive discounting.
Sales Trajectory
Trade like-for-like sales were up 7.7%, or up 17% outside of Victoria. Retail was up 36% and
Going forward, increased use of motor vehicles domestically over the summer holidays and pent-up demand following the easing of lockdown restrictions in Victoria are likely to provide further momentum for trade sales, in the broker's view. The main downside risk is potential that higher unemployment causes consumers to delay servicing their cars.
The stock provides a quality exposure to defensive end markets and there is a high degree of earnings visibility, in Macquarie's view, with plenty of opportunity and balance sheet capacity to execute on organic growth strategies as well as pursue any M&A.
Strength in the used car market is helping underpin elevated sales levels despite, as the broker points out, actual kilometres driven on major roads being still below pre-pandemic levels.
The company plans for the rolling out of stores, cost reductions at its distribution centre and envisages a material consolidation opportunity in truck parts. The commercial vehicle segment is targeting
Citi expects first half operating earnings (EBITDA) to rise by 24% and believes
While Morgans agrees the strength should continued for some time and in noting there was no mention of margins believes this implies there was no major cost escalation. Arguably, sentiment is distorted because of extensive government stimulus in
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