Harvey Norman shares crash in X-files mystery

Open an X-file:

Gerry Harvey‘s retail operation Harvey Norman has no explanation for why its shares tanked badly on Monday.

The company was responding to a please explain notice from the ASX after its shares dropped more than 8 per cent on Monday – wiping hundreds of millions from its market cap – with no obvious explanation for the rout.

In a statement to the ASX, Harvey Norman said it was not aware of any information which could explain the recent trading.

Gerry himself should be looking for an answer given his personal wealth was down more than $100 million on the day. He even tried to shore up the share price, buying two million shares for $8.7 million and posting a notice to the ASX within hours.

Was it the smoking man? The aliens? The FBI and Amazon in an elaborate cover-up? No, it was some other scam:

It comes after the group’s chairman Gerry Harvey lashed out at short traders in an article published in The Australian this morning.

Mr Harvey claimed the retailer (HVN) had been the victim of a “potential scam” by local fund managers that had seen them work with alleged media allies to push the value of the company lower.

Yesterday’s market activity — which wiped $430 million from the group’s market cap — drew the interest of market regulator the ASX, which sent a “speeding ticket” the way of Harvey Norman following the heavy fall and a lift in volume to 3.2 times above the recent norm.

From yesterday’s Credit Suisse note that triggered the share price rout:

Scenarios for discretionary retail

We examine a number of scenarios for the retailers under coverage. The scenarios are discussed in detail in a subsequent section. We use a somewhat arbitrary five-year timeline for analysing retailer impacts. It is likely that Amazon’s maturity profile will be significantly shorter in Australia than in the US, Canada and UK due to the more advanced stage of online shopping generally and Amazon’s more developed capability. Our ‘Low impact’ scenarios assume that the scenario companies are winners in consolidation of store-based retail activity. Our ‘High impact’ scenarios assume that the scenario company market shares contract in line with the overall store-based channel.

For HVN, the impact of Amazon on group EBIT is mitigated by product range and business outside of Australia. For PMV, the impact of Amazon on group EBIT is mitigated by the growth of Smiggle outside of Australia.

gns

Seems fair enough to me.

Comments

    • The govt doesn’t have any money. Every dollar it spends comes courtesy of the tax-cows.

      Many erroneously believe the govt actually has access to independent sources of funds, including investments but this is a total fallacy.

      • Rarely comment, but have to here mate. The government has no money….

        Taxes do not fund the government’s spending, they are a means to create demand for its own sovereign money and how they destroy the dollars they have already spent into the economy.

        The government’s budget needs to be balanced. Bull. The government chooses to fund deficits by borrowing because it suits the banking and investment sectors and as a way of telling the populace that it is limited in what it can do.

        Every single pensioner could get their money and more simply by a click of the Treasury computer – ie without it being a tax or bond funded expense item.

        The government is budget limited is the biggest lie ever. The banks create new money through their own loans and destroy money when loans are repaid.

        Even the Bank of England admits that MMT is how the system really works.

      • @Chris
        Agree with everything you say …. doesn’t change the fact that all money the government spends ultimately comes from the tax-payer.
        1. Borrowed money comes from (future) tax-payers …. it’s nothing more than racking up a credit bill for later payment.
        2. Printed money is simply a tax on the money the citizens earn, through dilution (subtle, I know, but that’s practically what’s at play here).

        Suggesting that both borrowed money and printed money are ‘independent’ sources of funds for the government is, frankly, nonsense because they both have a direct bearing on the value of money earned by citizens. And, as you point out, commercial banks ‘print’ money to buy treasury bonds.

      • Thanks for response Dominic.
        “2. Printed money is simply a tax on the money the citizens earn, through dilution (subtle, I know, but that’s practically what’s at play here).”
        Simply not true mate. The release valve for a government that spends more or less than the economy can accommodate is the exchange rate.
        When the rate of job depletion starts to accelerate and wages are taken out of the economy, there won’t be enough demand and major recession or worse will ensue. MMT spending, whether its to the unemployed, public servants or to companies, is real money that then gets spent into the economy and ensures there is sufficient demand.
        We really need to have a conversation (at the political level, not here) about MMT and how the Australian Government can fund everything that our country needs, including state funding and pensions, without taxation or borrowing. I’m going to write to Pauline and others. They all keep banging on about the only sources of funds for the Australian Government being taxes or going into hock by borrowing actual dollars from the market when they can just be brought into existence by a Treasury keystroke.

        Here is the link to a fellow heterodox economist who discusses the importance of the Bank of England’s admission: http://bilbo.economicoutlook.net/blog/?p=31063

      • The essence of what you’re saying is that nobody in the country needs to work as the Treasury can simply pay us all a salary by printing the money. This is easily proved wrong as no entrepreneur would accept Aussie Dollars in exchange for their goods in this instance — they would demand other currencies, or barter for stuff of true value. I am a businessman and I wouldn’t exchange any of the goods I have for sale for worthless Aussie dollars. Others would be precisely the same. Currency (money, to some) is a confidence game as it is backed by nothing whatsoever. The day Coles says, we’re no longer accepting Aussie Dollars as payment for our goods is the day ‘fiat’ dies. And if you took your AUD to the bank to exchange for USD they would refuse to accept them, for the same reason.

        You’re right, money is ‘lent’ into existence but extremely few citizens know this (or understand how it all works). If more did, the fiat system would fail quite quickly as it’s all about confidence and the fact that the government accepts taxes in fiat — nothing else. Governments love ‘fiat’ as it allows them to fund welfare programs and foreign military adventures. No more fiat = no more unnecessary wars and a welfare system that is a fraction of its existing size.

        The fiat system is doomed as it is nothing more than a glorified ponzi scheme — big changes to all our lives are in the pipeline and the day is not far off now.

      • Of course I am not implying that we could all sit at home and be paid by the Govt – but all the pensioners could – all without a line the ‘budget’.
        Anyway, I’ll just say one thing. The Aussie $ is very actively traded, both to purchase Australian assets, but also hedgers and risk takers. This will never change as long as we are a sovereign nation that issues its own currency. The only reason, we aren’t using US$ or Sterling or whatever, is that Australian taxpayers need to pay their taxes, whether GST or PAYE or CGT, in AUD, mate. The ATO doesn’t take US$s. That is where the demand to hold the currency comes from.
        Go and have a read of the link I sent. That’s enough of me in this place, today.
        With thanks

      • @Chris
        I appreciate your passion but I am quite satisfied that I am right on this subject having a fairly comprehensive academic and professional background in finance and economics. While I am always open to new ideas but there is nothing new to learn about funding government spending with printed money — it only ends one way. We shall therefore have to agree to disagree. Regards.

  1. You guys sometimes try to pretend as if you really know what is going on when in fact you are no better than any random punter performing superficial ‘analysis’. When you see something like this happen you should automatically look for a confluence of factors heading in the same direction.

    For a start, over the weekend we had an AFR article (cited in the response to the ASX price query today). The CS note came yesterday (you really need to downweight the importance of this – it was almost a nothing and HVN actually came off close to best after taking into account all business lines), recent director selling AND – most importantly – rumours going around insto desks, based on independent research from someone shorting the stock, that the cash balance at the last reporting date was fictitious (major, for obvious reasons).

    You guys should mostly keep out of trying to offer a strong opinion on things where you don’t really know much more than the average Joe. It makes you look both pompous and silly to anyone who actually has real insight.

    • Who are you referring to Sam? Im also ticking the ‘all of the above’ box. Im surprised the commercial real estate bubble is still intact. And everybody i know in retail says the last 6 months have mostly been aweful

      • Referring to MB.

        RE prices, retail sales conditions, Amazon etc are all either known knowns or known unknowns. They were not what drove the outsized impact on HVN yesterday which is what this (substantially amended in nature – without acknowledgement) blog piece specifically relates to. The CS note had some impact but it was a small component in a very large move.

        This piece is ‘mum & dad’ retail level analysis.

  2. On the North Coast there’s a local mattress mfing mob with the tag “sorry Harvey Norman, your prices should be halved” [on mattresses]

    Some cut through advertising obviously

  3. ErmingtonPlumbingMEMBER

    I always thought a large factor in Harvey Normans share price was its Property portfolio.
    Doesn’t HVN own all the properties used by franchisees?

    If the top of Comercial Property prices is being called, and we are seeing much more published from the property bears of late,…could this not be a factor in the share price drop.?
    A sign of an imminent property correction?

    • It always amazes me how well these companies like Westfield seem to do out of Aussie mall properties. Despite –

      – Australians being one of the biggest adopters of ecommerce
      – Sky high rents and valuations
      – The usual financial chicanery present in Mall finance, at a time of historically low interest rates
      – A glut of vacant small retail properties (in Melb at least)
      – NOW, the local entry of the biggest mall killer of the lot (Amazon)

      It just smells like it has the potential for epic bust along the lines of malls in the US. Has to happen at some stage.

    • Harvey Norman is somewhere people go to shop for big ticket items when they have NO money ! My Guess (sam) is that this is something to do with a change in the lines of credit that sub prime bogans use.

  4. Just trying to help here.

    A portfolio manager has confirmed that he, and a good few others, were TELEPHONED by a brokerage house on the morning of the drop. Accusations of improper accounting at HN were disclosed.

    • On the money – this was the real lemon among a basket of other factors (director selling, AFR investigative article, CS note etc) – do not believe it was a broker that started the rumour though.

      Most significant item was the suggestion that the cash balance as at the last report is phony – extremely serious allegation. Chinese whispers around the country.

      Probably need to be clear at this stage that ***I have no position***.

  5. a little disturbed by the glee i’ve been reading regarding australian retail here lately. i know we’re all no friend to gerry harvey and the rest of the rent seeking retailers in this country but be careful what you wish for. amazon and bezos are the biggest creeps of them all the push towards ecommerce underlines the increasing atomization and desocialisation of society.

    • Agree Stagmal.
      But the Government wants to attract companies to invest here, so Amazon will be welcome.
      Yet, they know Amazon: pays no taxes, undercuts retailers, provides crappy, low-paid jobs, seeks tax breaks to set up shop and then does zilch for the communities in which they operate.
      I am a reluctant publisher of novels on Amazon, yet I am there will millions of other unread novelists. They have a very big monopoly and the retail jobs they will remove from the economy (as well as the book and print on demand industry) and the associated wages will be devastating for many Australians. I’m no fan of Gerry and his retail empire, but those sales, support and other workers are people I would not like to see out of work. I hope the company can recover.

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