BRISCOE GROUP (ASX: BGP) IS A RELIABLE RETAIL STOCK WITH 50% UPSIDE

Behzad Golmohammadi Behzad Golmohammadi, July 21, 2022

Who is Briscoe Group? 

Briscoe Group (ASX: BGP) retails homeware and sporting goods in New Zealand. It operates 47 stores under the Briscoes Homeware brand, 42 stores under the Rebel Sport brand and 1 store under the Living and Giving brand. The company also sells its products online and delivers to addresses in New Zealand and Australia. Briscoe Group is headquartered in Auckland, New Zealand. 

 

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BGP is dual-listed on both the ASX and the NZX. Its shares, however, trade very infrequently on the ASX and for this reason we are using Briscoe’s chart on the NZX for our technical analysis. We also recommend you to look at the NZX if you want to buy Briscoe’s shares to avoid getting stuck owning the ASX-listed shares due to a lack of trading liquidity. 

 

Briscoe

Briscoe Group, Monthly Chart in Semi-log Scale (Source: Metastock)

 

COVID-related restrictions drove Briscoe’s sales 

Briscoe’s homeware and sporting goods categories were well-placed in a trading environment that saw customers spending more time at home for work, entertainment and exercise. In addition, spending on services was curtailed by COVID-related restrictions and parts of spending on services shifted towards spending on goods.  

The company’s online sales channels widely compensated for lost sales due to the COVID-induced store closures. Briscoe and its MD, Rod Duke with some 77% stake in the company and more than 40 years of experience in the retail industry, had already built a solid online sales channel to confront the competition from the likes of Amazon, which proved extremely helpful in the aftermath of the pandemic. 

The company also received wage subsidies from the New Zealand government, which helped it maintain profitability in line with its pre-pandemic levels.  

With the easing of lockdowns in 2021, Briscoe’s sales recovery accelerated to increase significantly above the pre-pandemic levels. At the same time, good inventory management in the face of supply chain disruptions and increased share of online sales as a mix of total group sales improved gross margins. 

 

Briscoe’s sales are on an upward trajectory even without COVID-related restrictions 

In the last five years prior to the COVID-19 pandemic, from 2016 to 2020, the company recorded an average 5.1% annual revenue growth (5.6% including the last two years), while recording an average of 9.7% annual earnings growth (10.1% including the last two years). 

Briscoe’s share price is now trading less than 20% above its pre-pandemic levels, which in our view doesn’t do justice to the profitability of the business in the last two years. 

Briscoe has a large and solid share of New Zealand’s homeware category due to its vast footprint across the country and its reasonably priced products. The company stands to beat its competitors with its “buy better prices guarantee” offer. Its business model also makes it resilient in the face of current inflationary pressures and consumers’ declining spending power. 

 

Attractive dividend yield 

Briscoe paid a 24-cent dividend in FY22 (ended on 30 January) from earnings of 31 cents per share, which gives it a payout ratio of 63%. The company’s dividend policy is to pay out at least 60% of its after-tax net profits. 

1Q23 sales to 1 May 2022 showed a slight increase on the PCP (Prior Comparable Period) and Briscoe’s managing director is confident the company is on track to exceed last year’s earnings. Assuming a similar dividend payout for FY23, BGP offer a dividend yield of almost 5% at the current share price of A$4.84. 

 

How to play Briscoe’s stock? Price target of NZ$7.25 

Briscoe’s share price has been on a very long-term uptrend following the Global Financial Crisis (the blue line on the chart). As we expect the company’s earnings to continue the current growth trajectory of the last several years in the long-term, we believe that prices near the long-term uptrend (around NZ$5.00) are attractive. 

We expect the share price to grow alongside its long-term uptrend and reach its all-time high of NZ$7.25 in the next 18 to 24 months.  

 

Stop loss at NZ$4.80 

A break below the long-term uptrend would at least signal a pause in the share price rise and it can open the way down to lower prices. As such, the stop loss level moves up in line with the uptrend, but for the next couple of months NZ$4.80 can be used as a stop loss level. A share price drop below this level would mean that the uptrend is broken. 

 

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Frequently Asked Questions about Briscoe (ASX: BGP)

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