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Daily ShareChat: Harvey Norman

By Jenny Ruth

Wednesday 16th June 2010

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 Jenny Ruth

Australia-based Harvey Norman, which has 27 stores in New Zealand, is facing an aggressive sales season with tough retail demand and the need to clear stock resulting in prices of some products falling 70%, says Tim Montague-Jones, an analyst at Aegis Equities Research in Sydney.

"Harvey Norman is offering large discounts, no deposit and 50 months interest-free financing to help clear stock," Montague-Jones says.

"We think the consumer has become far more interest-rate sensitive after an extended period of gouging out equity from a rising housing market," he says.

Nevertheless, the company has a healthy balance sheet with gearing of only 19% and interest cover of 13 times earnings.

"It is cashed up and could easily make an opportunistic acquisition overseas or domestically," Montague-Jones says.

The Australian housing market and business confidence took a hit in May on fears of Europe's sovereign debt woes spreading and the government's proposed resource tax.

"We expect retail conditions to be tough in the short term but when fear is rampant it is also the time to buy Harvey Norman. When conditions improve, the ship will quickly sail and Harvey Norman will be re-rated upwards."

Montague-Jones expects strong pickups in the company's operations in Asia, Slovenia and New Zealand but "the jury remains out on whether Ireland will survive."

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