Harvey Norman Earnings: Property Lessens Blow of Cyclical Downturn in Discretionary Spending

No-moat Harvey Norman’s global system sales decline of 7% in the first half of fiscal 2024 is tracking our full-year estimate. First-half net profit after tax of AUD 214 million was down 29% versus the previous corresponding period. We maintain our earnings estimates and continue to forecast a rebound in sales and earnings from fiscal 2025, as global consumer demand strengthens, with lower interest rates coming to pass the critical factor. We estimate pretax margins recovering to long-term maintainable levels at around 16% by fiscal 2026 versus an estimated 13% in fiscal 2024. We increase our fair value estimate by 2% to AUD 4 due to the time value of money. The board declared a fully franked dividend of AUD 0.10 per share, down 23% on the PCP.