Two top ASX All Ords retail shares are set to outperform the All Ordinaries Index (ASX: XAO) again in the year ahead.
That's according to the small to mid-cap investment team – Sam Koch, Will Thompson and Cooper Rogers – at Wilson Asset Management (WAM).
The ASX All Ords shares in question are furniture retailer Nick Scali Ltd (ASX: NCK) and lighting specialist retailer Beacon Lighting Group Ltd (ASX: BLX).
Both stocks have already delivered outsized gains over the past year.
As of yesterday's close, Nick Scali shares are up around 31% over 12 months, while Beacon Lighting shares are up more than 61%.
And that's not including dividends.
Nick Scali shares trade on a fully franked trailing dividend yield of 4.8%. Beacon Lighting shares trade on a fully franked trailing yield of 2.7%.
Now, here's why WAM is optimistic about the outlook for both ASX All Ords shares.
ASX All Ords shares tipped for more growth
"For the past 30 years, Beacon Lighting has predominately sold light fittings, globes, ceiling fans and electrical to retail customers," small-cap analyst Will Thompson said.
WAM added:
A relatively new strategy is to sell to trade customers (electricians) who buy electrical goods on behalf of their clients. Over the past six years, trade revenues have grown from less than $30 million to over $100 million and
And Thompson thinks the ASX All Ords share can continue to grow revenues.
He's said he's impressed with Beacon's exposure to the trade sector because "it creates further operational leverage by increasing the potential revenue from each of its stores".
WAM noted that in recent years, the increase in trade sales has offset Beacon's subdued retail business sales.
And Thompson believes the company's retail business sales will return to growth in a more buoyant economic environment amid WAM's expectations that the RBA will start cutting interest rates in early 2025.
The asset manager noted that, "Traditionally, lower interest rates can result in more renovation and building activity."
Which brings us to Nick Scali.
WAM explained that the ASX All Ords retail share sells furniture in Australia through the Nick Scali and Plush networks. Nick Scali is now going global after purchasing Fabb Furniture in the United Kingdom in May.
According to WAM:
Within Australia, Nick Scali's ability to gain market share, increase margins and efficiently allocate capital is unparalleled to its peers in the Australian market. What has driven these strong margins is its ability to buy cheaply with scale from its suppliers.
Sam Koch said he believes that management will be able to emulate this model with Fabb Furniture in the UK.
If management executes on increasing margins through operational efficiencies and expanding the store network, Koch expects that there could be an upside to the valuation for the ASX All Ords retail share.
