NZX 50-listed Consumer Discretionary Stocks to keep an eye on in 2021 -- WHS, GSH, CMO, MCK

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NZX 50-listed Consumer Discretionary Stocks to keep an eye on in 2021 -- WHS, GSH, CMO, MCK

 NZX 50-listed Consumer Discretionary Stocks to keep an eye on in 2021 -- WHS, GSH, CMO, MCK

Summary

  • While consumer discretionary goods are currently selling well, there is some worry that a downturn in the economy is imminent.
  • The Warehouse Group is expecting its ambitious eCommerce site to begin contributing positively to its books by the end of 2021.
  • Good Spirits Hospitality is eager to add establishments to its portfolio at bargain prices.
  • Colonial Motor Company will be operating in 2021 with caution, revealing no big plans for growth as it expects the economy to get worsen.
  • Millennium & Copthorne Hotels’ financial performance will be dependent on its property sector’s feature to perform favourably on a continuing basis.

The performance of consumer discretionary stocks is one way to predict the health of an economy. Consumer discretionary items are considered to be non-essential, yet consumers typically purchase them when they have means.

When times are tough all round, sellers of discretionary items are likely to take a financial hit as consumers opt to reduce or defer purchase of discretionary products.

The consumer discretionary sector in NZ fared rather well in 2020 and rebounded in the latter half of the year. Spending on non-essential items was significantly higher in December 2020 than in the previous corresponding period. Spending on motor vehicles was up 9.5%, while clothing was up 8.2%.

While this all seems positive leading into 2021, many companies in the consumer discretionary sector express uncertainty regarding the health of the economy, and there is a general fear that a downturn is forthcoming.

Here are 5 consumer discretionary stocks to watch out for as they deal with economic uncertainty.

The Warehouse Group Limited

The Warehouse Group Limited (NZX:WHS) comprises of several major brick and mortar retail outlets, all contributing to the success of the group (i.e. Warehouse Stationary, Noel Leeming, Torpedo7 etc).

In August 2019, the group was joined by an ambitious online-only outlet, TheMarket.com. TheMarket is described as New Zealand’s answer to Amazon and it is hopeful of capturing some of the online market that the group’s other outlets have traditionally found difficult to grab. The eCommerce venture required a fairly substantial investment by The Warehouse Group, costing approximately 12 million NZD to actualise (and just as much to maintain every year). The outlet is expected to become profitable in late 2021 at the earliest.

TheMarket is the fastest growing eCommerce site in New Zealand, so it should begin bolstering the group’s earnings shortly.

On 25 January, at the time of writing, Warehouse Group was trading flat at NZ$3.07, declining by 0.32%.

Good Spirits Hospitality Limited

Ongoing financial stress and a lack of tourism in New Zealand are continuing to force a number of hospitality establishments to close their doors. Good Spirits Hospitality Limited (NZX:GSH)

was challenged by the events of 2020, it has weathered the worst of the storm, and can now see the opportunity to re-grow via acquisitions of establishments, which fell victim to the harsh operating conditions.

Good Spirits note that acquisition is currently a popular strategy by other large corporations as it also sees the opportunity to add establishments to its portfolio at competitive prices.

Good Spirits exceeded budget expectations in 2020 and ended with $4.8 million net cash (up from 2.3 million the year prior). With their strong financials and a supportive banking/credit environment, Good Spirits is well positioned to pursue its re-growth strategy.

On 25 January, at the time of writing, Good Spirits was trading flat at NZ$0.081.

Colonial Motor Company Limited

Colonial Motor Company Limited (NZX:CMO) holds a pessimistic outlet for the economy moving forward, and thus has not sought any long-term financial commitments.

The recent rebound in the NZ economy, according to the Chief Executive GD Gibbons, will be short-lived. Colonial Motor is preparing for a 2021 environment congruent, which it had initially planned for April 2020 (NZ’s first lockdown).

Gibbons notes that a change in the car dealership industry is inevitable, but he does not offer insight into how the Company plans to adapt. Colonial Motor appears to be at the whim of the market and does not show much success in its measures to counteract the ill effects of the lockdowns. It does not help that there are inherent limitations in pivoting car dealership operations away from the traditional showroom model.

On 25 January, at the time of writing, Colonial Motor was trading flat at NZ$8.7.

Millennium & Copthorne Hotels NZ Limited

Millennium & Copthorne Hotels NZ Limited (NZX:MCK) classifies itself as a property company which holds hotels assets.

This is important to note because it is not the hotel operations of the Company that is responsible for the financial optimism in the immediate future. Rather, it is the growth and profit derived from its property sector which will be the driving force.

Sales within its property sector are expected to stay as strong as they were in 2020. The property sales are of course buoyed by the inflation in property prices in New Zealand and Australia, which show no sign of going down.

In regard to the hotel operations, MCK indicates that minimal profit and low occupancy rates are expected for the future. Much like Colonial Motors, MCK is also sceptical of the recent rebound experienced by the NZ economy, and it expects things to get worse before they get better.

On 25 January, at the time of writing, Millennium & Copthorne was trading at NZ$2.21, decreasing by 1.34%.

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