Harvey Norman (HVN) – Shopping spree

Harvey Norman is an integrated retail, franchise and property business, operating under the Harvey Norman, Domayne and Joyce Mayne brands. The company was founded in 1982 and is headquartered in Homebush West in Sydney.

Harvey Norman Holdings (HVN) posted FY25 earnings ahead of market expectations, as consumers opened their wallets after a long period of being constrained by high interest rates and persistent inflation pressure on households. A highlight of the result for Ord Minnett was a much tighter rein on costs in the dominant Australian division than has been exhibited in recent years.

Margins at the profit before tax (PBT) level in the second half widened 81 basis points (bp) on a year ago to 5.3%, even as lease depreciation charges made a negative contribution of 39bp. Excluding the pandemic years, the full-year PBT margin of 5.5% was the highest since 2010. Like most of its consumer discretionary peers, the electrical and furniture retailer also flagged a strong start to FY26 with like-for-like (LFL) sales growth from its franchised stores running at 6.6% on a year ago in July, comfortably ahead of a consensus estimate of 3.7%.

Post the result, we have raised our EPS forecasts by 8.1%, 10.9% and 12.0% for FY26, FY27 and FY28, respectively, to incorporate the benefits from the interest rate easing cycle and cost control on the Australian division and increased investment in its nascent UK operations. The EPS upgrades lead us to raise our target price on Harvey Norman to $5.90 from$4.50.

We maintain our Lighten recommendation on valuation grounds, however, given the more than 30% rise in the share price since 30 June.

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