Interest rates look set to stay low or head lower throughout next year and the psychological effect this has on consumer spending may boost company revenues that are sensitive to the discretionary spending habits of everyday Australians. Consumer trends also act as important earnings determinants for these types of businesses and those on trend in a low-rate environment may surprise to the upside next year.
Village Roadshow (ASX: VRL) is an international entertainment company with interests in theme parks, cinemas and film distribution and production. It is Australia's largest theme park operator and runs Sea World, Wet 'n' Wild and Warner Bros Movie World theme parks across the Gold Coast. It has recently opened Wet 'n' Wild in Sydney's west, with impressive results. It has now sold a staggering 155,000 season passes to the park for between $99.99 and $124.99, with the park turning away visitors last week after reaching capacity. A lower dollar should encourage domestic tourism in 2014, with the added effect of encouraging more tourists from abroad to visit theme parks across Australia. The group is scheduled to open a theme park on Hainan Island in China in late 2014. Negotiations are ongoing to develop other opportunities across China and Southeast Asia. Increased consumer spending should also benefit the movie theatre and film production businesses. Current yield is around 3.5% on a not unreasonable PE of 16 based on FY 2014 forecast earnings.
Kathmandu (ASX: KMD) is a clothing and outdoors equipment retailer that has delivered strong results despite an extremely tough retail environment in the past year. This is perhaps due to its niche market of outdoors or adventure clothing proving more resilient to headwinds that have impacted far larger and more mainstream retail rivals like David Jones (ASX: DJS) and Myer (ASX: MYR). Kathmandu now has approximately 130 stores across Australia and New Zealand, with big plans for store expansions and its online offerings. The UK operations have disappointed, but with a reportedly rapid pick-up in economic growth in the UK this may be set to change. Again the low-rate environment should encourage discretionary spending on the group's travel and adventure products and clothing. Kathmandu is dual-listed and was the second best performing company on the New Zealand stock exchange in 2013, only behind accountancy software phenomenon Xero (ASX: XRO).
Given the low-rate environment driving up residential property sales it seems a fair assumption that the services of home loans provider Mortgage Choice (ASX: MOC) will remain in growing demand. The business says it writes a home loan every 15 minutes via its network of franchises and an upswing in the housing cycle should support growth. Low rates equal increased borrowing across the board and the company also offers car, business and personal loans. Mortgage Choice trades on a current yield of 4.5%, with the group advising of good growth in cash profits and dividends for FY 2014 at its recent annual meeting.
Foolish takeaway
For these companies being in fashion is important. In their own ways they all look like they should be going forward. I like the prospects of all three to fast-grow revenues in 2014. At the right price they are worthy of consideration.
