Hopefully at the results announcement next week they can provide more colour on trading conditions. They have basically pre-released the result for the first half, so the risk is a material downgrade to the 2H. Insights from the Kmart Group results should be relatively positive for BST? Unless Kmart group is taking share from BST, but if consumers are trading down then both should be beneficiaries? BST is a company that knows the value space, work their inventory levels hard (move the product if it is not shifting and have the right levels of inventory on hand, because they are a high traffic business) and watch your costs, that is why they have the margins they have (near 20% at Ebit level and a gross margin of 50%). The Kmart Group generated 9% margin at the Ebit level. If you halved BST margins (bring them in line with Kmart Group) the stock would be on 11x and a 7% yield assuming an 80% payout.
Customers continued to respond positively to Kmart’s lowest price positioning, and sales growth was achieved across all categories. Target’s performance reflected continued improvements in the product offer, particularly in the focus categories of apparel and soft home. With more normal trading conditions during the half, the full benefits of the significant network change program undertaken across Kmart and Target were also able to be realised.
Consumer discretionary stocks are on the nose at the moment spooked by the threat of higher interest rates, loans coming off fixed rates, which implies less monies to spend, but it does feel oversold, but not sure I want to add more at the minute. Listen to what management have to say next week at the risk of missing some of the rebound.
BST Price at posting:
$1.65 Sentiment: Buy Disclosure: Held
