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First NZ upgrades Briscoe to '‘neutral

Friday 2nd August 2013

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First NZ Capital upgraded its recommendation on homeware and sporting goods retail chain Briscoe Group to 'neutral' from 'underperform' and raised its outlook for earnings, citing better sales.

Briscoe this week posted a 6.4 percent increase in second quarter sales and a 3.9 percent rise in same-store sales, compared with the year earlier quarter. The homeware unit posted its ninth consecutive quarter of headline and same-store sales growth, compared with strong growth the year earlier, First NZ said in a research note. The Rebel sporting goods chain also posted an impressive performance considering strong figures in the year earlier period, First NZ said.

"Briscoe clearly has a winning merchandising and marketing formula, as evidenced by its results in the context of a not particularly supportive retail landscape," the brokerage said. "We have assumed some margin expansion going forward, taking into account operating leverage corresponding with an improved sales profile."

First NZ upgraded its earnings expectation for 2014 by 9 percent, 2015 by 12 percent and 2016 by 15 percent, on the back of a better economic outlook and optimism that Briscoe will continue to gain market share.

The brokerage has upgraded its discounted cash flow valuation to $2.35 from $2, and its 12-month target price to $2.60 from $2.15.

Shares in Briscoe rose 0.9 percent to $2.38, taking their gain so far this year to 7.8 percent.

"It is our view that Briscoe is in a sweet spot at the moment, particularly from a market share perspective," First NZ said. "It is currently not overly expensive and has an attractive dividend yield."

Briscoe could pay a special dividend should current trends continue, the brokerage said.

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