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Where to from here?: For 1H21, WHS delivered a whopping 140% lift in adj NPAT, but in line with expectations after it provided three earnings upgrades since December with sales and margins continuing to outstrip expectations. This not only allowed WHS to resume dividends, it also paid back the NZ wage subsidy and still had net cash of $184m. WHS has benefitted from (1) strong demand as international travel budgets have been redirected into domestic retail, (2) supply chain disruptions lowering the need to discount and (3) cost out and efficiency gains. However, while this may continue while borders remain shut, there is likely to be some reversion to more normalised levels of demand at some stage. We forecast a decline in FY22 adj NPAT, but still to a level some 45% above FY20 and this decline may push out to FY23 if the current environment persists through next Christmas. On our forecasts WHS trades on an FY21 PE of 7x, but an FY22 PE of 11x and FY19 PE of 18x. Trading in line with our revised TP, retain Neutral.
Adj NPAT of $111m, up c140% yoy: Group sales were up 7%, gross profit up 16% and operating profit up 125%. Noel Leeming continues to perform well with sales up 16% and EBIT up 54%. Red sheds EBIT was up $63m, or 105% on sales up only 3%. Torpedo7 benefitted from the increase in outdoor pursuits, delivering an EBIT profit finally of $5.2m. TheMarket.com, generated an EBIT loss of $9.2m. WHS declared a 1H dividend of 13cps to go with February's 5cps special.
Outlook and earnings changes: Sales for the first 7 weeks of 2H21 are relatively flat year on year but WHS is cycling a pcp which saw increased COVID-19 uncertainly and an unseasonal lift in sales. Compared to the first 7 weeks of the 2H19, sales are up 9.7%. Following today's result we have lifted our forecasts for the Red sheds, Stationery and Torpedo7, partially offset by lower forecasts for Noel Leeming. We have also reduced our depreciation forecasts following store divestments. We have lifted our FY21/22/23 adj NPAT forecasts by 7%/8%/6%.
Valuation and Risk: Our revised DCF-derived (terminal WACC 8.9%, TGR 1.5%) TP is $ 3.70 (from $3.35), reflecting updated forecasts. Risks: COVID, change in the NZDUSD and consumer confidence