New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Briscoe&nbsp;Group</h2>
<p><strong>1Q21 Sales Checkout</strong></p>
<p><strong>RESEARCH&nbsp;INSIGHTS</strong></p>
<p>Briscoe Group (BGP) was tracking well in the lead up to Alert Level 4, before sales fell away as store doors temporarily closed from 26 March. The outlook for BGP and the retail sector is opaque, with the full extent of the impact of lockdown policies unclear, and consumer appetite for bricks &amp; mortar shopping through lower Alert Levels uncertain. In addition, the deteriorating economic outlook may weigh on medium-term growth. BGP is well positioned to weather near-term turbulence with a solid track record and a strong balance sheet.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/116/original/image_21666551841588552268242.png?1588552268" class="editor-image img-responsive" data-smartkarma-image-id="131116"></figure>
<p><strong>1Q21 a tale of two halves</strong></p>
<div id="m_85346454382646505iecpe">
<p>For the period to 24 March 2020,&nbsp;BGP&nbsp;group sales were up +4% on the prior year period, ahead of our prior full year run rate. Unsurprisingly, sales fell away as New Zealand entered&nbsp;lockdown, with&nbsp;BGP&nbsp;announcing 1Q21 sales of NZ$97.0m, down -36% on the prior year period.</p>
<p>With online channels having resumed trading, volume has surged with recent trading days surpassing previous online sales peaks. Prior to&nbsp;COVID-19&nbsp;online penetration was ~11% of group sales.&nbsp;Although online penetration has increased materially, it is not a significant offset to door closures.</p>
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<p><strong>Outlook opaque</strong></p>
<div id="m_85346454382646505ih8a8">
<p>At this stage the outlook remains opaque with limited insight into trading through the lower Alert Levels. 1H21 guidance commentary of a modest profit, whilst paying the majority of staff 100% of wages, suggests significant cost control measures, partially enabled by the Government wage subsidy in addition to negotiations with landlords and suppliers. When&nbsp;New Zealand shifts to Alert Level 2 we expect elevated discounting across the retail sector as companies look to clear higher than usual stock levels. We expect this to weigh on gross margin.</p>
<p>Post&nbsp;COVID-19, and once the economic implications of New&nbsp;Zealand's&nbsp;lockdown&nbsp;measures become apparent, parallels to the Global Financial Crisis (GFC) become more relevant. Although&nbsp;BGP&nbsp;has a solid track record, we are cautious on&nbsp;the medium-term outlook with both&nbsp;Homeware&nbsp;and Rebel Sport posting significant same store sales (SSS) declines during the&nbsp;GFC, down -6% and -15% respectively in FY09.</p>
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<p><strong>Earnings changes</strong></p>
<div id="m_85346454382646505i2x7k">
<p>We have made material downgrades to our earnings forecasts reflecting store closures and a reduced operating capacity in lower Alert Levels. Providing some offset are significant cost control measures, including a Government wage subsidy of NZ$11.4m. In light of trading conditions we no longer assume an interim dividend.</p>
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<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
</div>
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Briscoe&nbsp;Group
1Q21 Sales Checkout
RESEARCH&nbsp;INSIGHTS
Briscoe Group (BGP) was tracking well in the lead up to Alert Level 4, before sales fell away as store doors temporarily closed from 26 March. The outlook for BGP and the retail sector is opaque, with the full extent of the impact of lockdown policies unclear, and consumer appetite for bricks &amp; mortar shopping through lower Alert Levels uncertain. In addition, the deteriorating economic outlook may weigh on medium-term growth. BGP is well positioned to weather near-term turbulence with a solid track record and a strong balance sheet.

1Q21 a tale of two halves

For the period to 24 March 2020,&nbsp;BGP&nbsp;group sales were up +4% on the prior year period, ahead of our prior full year run rate. Unsurprisingly, sales fell away as New Zealand entered&nbsp;lockdown, with&nbsp;BGP&nbsp;announcing 1Q21 sales of NZ$97.0m, down -36% on the prior year period.
With online channels having resumed trading, volume has surged with recent trading days surpassing previous online sales peaks. Prior to&nbsp;COVID-19&nbsp;online penetration was ~11% of group sales.&nbsp;Although online penetration has increased materially, it is not a significant offset to door closures.

Outlook opaque

At this stage the outlook remains opaque with limited insight into trading through the lower Alert Levels. 1H21 guidance commentary of a modest profit, whilst paying the majority of staff 100% of wages, suggests significant cost control measures, partially enabled by the Government wage subsidy in addition to negotiations with landlords and suppliers. When&nbsp;New Zealand shifts to Alert Level 2 we expect elevated discounting across the retail sector as companies look to clear higher than usual stock levels. We expect this to weigh on gross margin.
Post&nbsp;COVID-19, and once the economic implications of New&nbsp;Zealand's&nbsp;lockdown&nbsp;measures become apparent, parallels to the Global Financial Crisis (GFC) become more relevant. Although&nbsp;BGP&nbsp;has a solid track record, we are cautious on&nbsp;the medium-term outlook with both&nbsp;Homeware&nbsp;and Rebel Sport posting significant same store sales (SSS) declines during the&nbsp;GFC, down -6% and -15% respectively in FY09.

Earnings changes

We have made material downgrades to our earnings forecasts reflecting store closures and a reduced operating capacity in lower Alert Levels. Providing some offset are significant cost control measures, including a Government wage subsidy of NZ$11.4m. In light of trading conditions we no longer assume an interim dividend.




Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255




Briscoe

Briscoe Group: 1Q21 Sales Checkout