By Gus McCubbing
What a difference one day – or one man – can make.
Analysts cast a positive light on the ASX’s long-suffering retail sector earlier this week, suggesting it was primed for a rebound as the conflict in the Middle East appeared to have settled, which would help keep interest rates on hold and give consumers room to breathe.
Jarden pointed to positive end-of-financial-year shopping data, released on Wednesday, which suggested there were already green shoots.
The broker noted that online traffic across 53 brands that it tracks, from major supermarkets and bottle shops to sneaker outlets and jewellery chains, jumped 22 per cent in June from a year earlier.
It added that the ASX’s retail sector, which has climbed nearly 12 per cent in the last month, had already passed through bear market territory.
Analyst Ben Gilbert listed Chemist Warehouse owner Sigma Healthcare, electronics chain JB Hi-Fi, youth apparel retailer Universal Store Holdings and travel agent Flight Centre as his top picks.
“With the Middle East conflict settling, and the Reserve Bank of Australia now on hold and the next move – in our view – likely a cut, we view the discretionary outlook as positive going forward,” Gilbert said.
In his own report, Morningstar analyst Johannes Faul this week that said while inflation was hurting consumer spending, which could be further exacerbated when the fuel excise ends in August, retail stocks looked “mostly cheap”.
His top picks were Harvey Norman, Domino’s Pizza, pub and bottle shop owner Endeavour Group, and IGA owner Metcash.
But then the fragile ceasefire between the US and Iran shattered overnight, with US President Donald Trump declaring that an interim peace deal between the two nations was over. That sent the oil price back up towards $US80 a barrel and government bonds lower, reigniting the threat of inflation.
Ten Cap portfolio manager Jun Bei Liu said that while she liked Eagers Automotive, the flare-up in the Middle East meant investors were better off cashing in whatever gains they made in retail over the last month.
“They all had a bit of a rally and are now heading into a very tough consumer environment,” Liu said. “I would be taking profits in most cases … the Iran conflict will drive up oil prices and again put more pressure on households.”
Wilson Asset Management investment analyst Sophia Mulligan warned retailers that those most exposed to increased freight costs would be hit the hardest by the renewed fighting.
Her top picks are piercing chain SkinKandy, given its scope for offshore growth, and Harvey Norman because it was currently trading for the value of its property portfolio.
“This implies the market is attributing little value to the retail business,” she said. “While there are clearly cyclical headwinds in retail, we think the stock is materially undervalued.”
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