Australia's booming property market provided a solid boost for Harvey Norman Holdings Limited (ASX: HVN) in the 12 months ended 30 June 2015, with the retailer and property group reporting a strong lift in profit for the period.
So What: Harvey Norman generates much of its earnings from selling household electronics and furniture, which have both proven to be popular items in the current economic environment. Pleasingly, the group's chairman, Gerry Harvey, expects this trend to continue over the coming years and this should support Harvey Norman's growth in the medium term. He said: "The outlook for the property market in Australia remains positive, particularly new starts, renovation expenditure, and secondary clearance rates."
Indeed, this could certainly be the case if the Reserve Bank of Australia takes its knife to interest rates again before the end of the year, as pundits are increasingly expecting it to do.
Notably, more than one third of Harvey Norman's stores are located in New South Wales, which has been where the property market has exploded in recent years. During the period, Harvey Norman's sales rose 4.3% compared to the prior year to $6.02 billion, or 4.6% on a like-for-like basis.
In the local market, much of this growth came in the second half of the year, with like-for-like sales increasing a total of 4.5% for the period. The strength of the market, together with a lift in property revaluations, saw the company's earnings (before interest and tax, or EBIT) rise 21.8% to $411 million on improved margins, while its overall net profit after tax (NPAT) surged 26.6% (on a margin of 9.86%, compared to 8.31% in the prior year).
Excluding the impact of property valuations however, NPAT rose 19%. Meanwhile, the company also announced a fully franked final dividend of 11 cents per share, which represents an increase of 37.5% compared to the year before.
Now What: While it stands to continue benefiting from Australia's red-hot property market, Harvey Norman, together with rivals such as JB Hi-Fi Limited (ASX: JBH) and Dick Smith Holdings Ltd (ASX: DSH) should also benefit from the government's small-business tax incentives, announced in May as part of the federal budget.
Indeed, the company stated that this helped bolster sales in the last quarter of the 2015 financial year, while it should also help drive computer, mobile phone and other electronics sales over the next two years as well. Harvey Norman's shares were trading 1.6% lower near the end of Friday's session, compared to a 1.9% lift for JB Hi-Fi and a 0.5% rise for the broader market.
