EUR 850.00 For Business Accounts Only

Morningstar | Briscoe Group's Result Meets Expectations; NZD 3.65 FVE Unchanged

No-moat-rated Briscoe Group reported net profit after tax of NZD 63.4 million for fiscal 2019, in line with management’s guidance provided in early February 2019, as well as our NZD 63.0 million estimate. The New Zealand retailer finished fiscal 2019 with previously announced full-year revenue of NZD 632 million, 4% higher than the prior year. A full-year dividend of NZD 20 cents was declared, representing a 70% payout ratio--also in line with our estimate. At the current price, shares are slightly undervalued, trading at a 7% discount to our unchanged NZD 3.65 per share intrinsic valuation.

We maintain our sales CAGR estimates at 4%, for the coming decade, representing a slowdown from the five-year historical average of close to 6%. This implies Briscoe Group increases sales roughly in line with overall New Zealand retail spending over the period, maintaining market share against both online and offline competition. Briscoe's online business delivered 27% sales growth on the previous year, and we expect online sales to continue growing faster than in-store sales.

The gross profit margin expanded marginally to 40.1% from 40.0% a year ago, supported by improved stock-loss management. Yet, the EBIT margin slightly decreased to 13.6% from 13.8% in the prior year, as higher administration expenses offset the gains from less shrinkage. We expect competition to remain intense, from both the brick-and-mortar and online channels, inhibiting further EBIT margin expansion. With relatively stable EBIT margins, we expect EPS to grow in line with the top line at around 4% per year.

We will cease coverage of Briscoe Group in April 2019 to focus on larger businesses with greater liquidity that are more suitable for our investor clients. We reiterate our no-moat, high uncertainty, and Standard stewardship ratings for Briscoe Group.