By Jenny Ruth
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Wednesday 15th December 2010 |
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Hallenstein Glasson Holdings's shares have a solid yield but that is offset by her expectation of continuing bad news from the retail sector, says Buffy Gill, an analyst at Goldman Sachs & Partners.
“We believe New Zealand pure-play listed retailers will struggle to outperform the market over the next six months in the absence of top line sales growth,” Gil says.
Headwinds afflicting the sector include subdued consumer confidence combined with a structural shift in consumer behaviour to being more cautious about spending and having a greater propensity to save, she says.
Low relative levels of household wealth, driven by softening house prices and stagnant real wage growth isn't helping either.
Another adverse factor is rising material and labour costs in China, as well as increasing labour costs in New Zealand, which have so far been masked by the high New Zealand cycles.
Retailers have little fat left to cut either.
Gill says longer-term, an eventual rise in interest rates will further dampen demand and a weaker New Zealand dollar will lead to a rise in purchasing costs.
“In addition, we would expect current difficult retail trading conditions in Australia to be resulting in that market proving harder to crack for Hallensteins than ever before.”
Recommendation: Hold.
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