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Harvey sees bargain in Norman shares

By Leonie Wood



AS Harvey Norman hit five-year lows last week, sinking below $2, its founder Gerry Harvey waded into the market to buy up big. Well, big in most people's language.

For Mr Harvey the $3.88 million spent on two million shares was a mere sprinkle to his existing portfolio of more than 166.55 million shares in the furniture retailer.

"I obviously thought they were very cheap," Mr Harvey said. "Those shares were $4, they then came down to $2 and I was thinking about buying some at $2.50, let alone $2."

Not that Mr Harvey needs to buy anything cheaply: his 16 per cent direct personal holding is valued around $365 million, although it would have been worth twice as much a year ago.

Harvey Norman shares have tumbled sharply in recent months, losing 50 per cent in the past six months, amid investor concerns that if the housing boom has peaked then consumer purchases of washing machines, sofas and electrical goods will ease.

Investors also are fretting about official figures that suggest consumer spending weakened after January as fears intensified of the war with Iraq.

But more pertinently, investors expressed an array of concerns about the quality of the latest earnings figures from Harvey Norman with some suggesting there was a "lack of clarity" in the report, triggering what was reportedly a strong rebuke from Mr Harvey over lunch at brokers Salomon Smith Barney late last week.

The retailer reported half year net profit rose 15.6 per cent to $78.49 million, but analysts noted that most of the increase could be attributed to the Rebel Sport division, implying that earnings in the core, franchised furniture, electrical and bedding stores had stalled.

Yet on Friday Mr Harvey claimed Harvey Norman had not experienced any tightening in consumer spending.

"None whatsoever," he said. "There's no evidence of that in our place. January and February they were up about the same as they were in July to December and the first two weeks of March."

So confident was he of Harvey Norman's performance, Mr Harvey began buying shares soon after the profit figures were released.

But even he gets a thing wrong now and again.

In his statement of holdings, lodged with the Australian Stock Exchange on Friday, Mr Harvey stated that he bought two million Harvey Norman shares through the market on March 19 at $3.88 million.

But that would indicate an average purchase price of about $1.94 a share on a day when the shares traded between $2.05 and $2.21.

Asked when he bought the stock, Mr Harvey acknowledged that he bought more than 1.94 million of the shares a week previously, on March 14, at an average price of $1.9356 each, and the balance on March 17 at $2.01 each.

"You are absolutely correct," Mr Harvey said, checking his diary entries.

"There must be a day wrong."

Asked if he would amend the notice, Mr Harvey said he probably would.

Harvey Norman slipped 5¢ on Friday to $2.07.




-THE AGE