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These companies can gain from growing housing market

News of real estate sales prices going up and auction clearance rates at their highest in several years have gotten house hunters in the capital cities beginning to move quicker to find and secure a new home.

Home builders are seeing a rise in building approvals, but some building materials companies still are of the view that 2014 will not see an incredible increase in new home construction. Yet whether the newly purchased home is old or new, people tend to buy new household items for their new residence, and with the economy starting to improve, they may feel that they have more disposable income to use for this.

Here are some of the better-known companies that supply those goods, and will see better business when the housing construction sector eventually moves into a higher gear.

The Reject Shop (ASX: TRS), a discount retailer of homeware and personal items, has opened 41 new stores in FY2013, bringing the total to 276 as of 31 June, and in this financial year plans to bring the total to over 320.

Comparable sales were up 1.8% for 2013, and although earnings before interest and tax (EBIT) was up 8.7%, the cost of opening new stores brought net profits slightly down from $21.9 million in 2012 to $19.5 million.  In 2013 and 2014, its number of new stores has doubled to about 40 per year from the 20 per year of previous years. A stronger Aussie dollar gives it stronger purchasing power for imported goods, which helps its profit margins and bottom line.

Nick Scali (ASX: NCK) specialises in furniture and operates Nick Scali and Sofas2Go, as well as the international brand Chateau d’Ax in Australia. Revenue in 2013 was up 16.5% to a record $127 million, and same store sales increased by 5.9%.

It is already in New South Wales, Queensland, Victoria, the Australian Capital Territory and South Australia, and its next phase of growth will be into Western Australia starting in FY2015 with new stores and a distribution centre to support them. The share price has just hit a high of $3.11 with a price-earnings (PE) ratio of 15.7.

Breville Group (ASX: BRG) is known for its household appliances under the Breville and Kambrook brands. About 40% of its revenue comes from the US market, so it also has exposure to a large population and a recovering housing market there also.

In 2013, it launched its goods into the UK market under the brand name Sage, which is being endorsed by the famous chef Heston Blumenthal. In 2013, sales were up 13.7% and net profit after tax ended up at a 10-year of high $49.7 million. Its share price is at $8.12, up about 33% over the past 12 months.

Both Harvey Norman (ASX: HVN) and JB Hi-Fi (ASX: JBH) have had overall sales increases in the first quarter 2014, and are looking towards a merrier Christmas with signs that consumer sentiment is improving. Their share prices have been trending up strongly since February 2013.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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