To JB-Hi Fi, Harvey Norman and Myer.
Citi analysts forecast an 8% decline in EBIT per annum for JB Hi-Fi, Harvey Norman and Myer over the next five years ahead of the much-anticipated launch of Amazon in Australia.
Earlier this year, Citi analysts downgraded long term earnings forecasts for JB H-Fi by more than 40% and Harvey Norman by more than 30%.
This compares to 1% declines for BCF and Rebel, reflecting less disruption and operating deleverage. A more favourable five year outlook is expected for Super Cheap Auto (+4% p.a.), Bunnings (+6% p.a.), Coles (+6% p.a.) and Woolworths Food (+9% p.a.).
In a note shared with Appliance Retailer, Citi analysts said, “Discretionary retailers have been sold off indiscriminately over 2017, de-rating by 25% to 35% in anticipation of a highly uncertain Amazon impact. This creates opportunities given the uneven impact across the retail industry.
“In our view, Super Retail has sold off too aggressively relative to the long term earnings risks and retain our ‘buy’ rating on Super Retail. We downgrade Myer to Neutral as the share price reflects most of the earnings risks, and retain our ‘sell’ ratings on JB Hi-Fi and Harvey Norman.
“Electronics and department stores are clearly the most exposed to Amazon’s entry, with JB Hi-Fi the stand-out given the product and category mix. These retailers operate in categories where Amazon has penetrated successfully offshore and disrupted incumbent retailer sales and margin trajectory.
“All of these retailers sell branded, commoditised products with limited private label offerings. In addition, with the exception of Officeworks, these retailers have relatively underdeveloped supply chains and omni-channel strategies, compared to global peers.”