Pick of the small retailers

Every Australian retailer will be impacted by Amazon to a varying degree. At the smaller end of the market, Baby Bunting is the key stock pick of Sam Teeger, analyst with Citi Research. He has it as a “buy” with a target price of $2 (it was just over $1.90 as we went to the printers). He says it has the best store rollout in the sector and he views Australia’s strict safety standards as a hurdle for Amazon to overcome.

He also likes RCG, the holding company for a number of footwear and active lifestyle businesses, although acknowledges the stock is up 43% since May 1, 2017 and “consensus expectations need to be met to drive material share price appre- ciation”. It’s also a buy with a target price of 91¢ (84¢).

Baby Bunting and RCG have underperformed the market by 29% and 52% respectively since the start of the 2017 financial year. However, Teeger views both stocks as oversold. He says there are a number of under-appreciated factors that offset the risks posed by Amazon.

Among other small retailers, Beacon Lighting is more exposed to Amazon than Nick Scali. “We consider a slowdown in the housing cycle to be a more influential factor and have neutral ratings on both these stocks.”

Teeger says the price of Beacon Lighting (neutral, target $1.40; $1.35) has fallen 28% since April 28. “It is factoring in the risks from Amazon and slowing housing. Nick Scali (neutral, $6.45; $6.15) is least exposed to Amazon but a slowing housing cycle prevents us from being more positive.”