Consumer discretionary shares haven't had the best year in general as a sector.
While sectors like materials and industrials have brought strong returns (up 10% to 20%), consumer discretionary has lagged behind.
For context, the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) has risen just 4% since January.
However, the team at Bell Potter have just initiated coverage on Beacon Lighting Group Ltd (ASX: BLX) with a buy recommendation.
Despite the share price being down roughly 3.5% since the start of the year, and almost 20% since August, Bell Potter has an optimistic price target on this consumer discretionary stock.
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Beacon Lighting Group
Beacon Lighting Group is a specialist retailer of lighting, fans, globes, and electrical accessories, servicing retail, trade, and wholesale customers.
The company retails over 3,500 products, with more than 85% of those designed in-house, which is key to its vertically integrated business model and thus provides high, defensive gross margins.
These products are primarily sold through a network of 131 retail stores across Australia, as well as through a significant online presence.
Future growth in store
Bell Potter said in yesterday's report that, as the largest specialist retailer in a fragmented market made up of single-store operators or large multi-category retailers, it has a unique market positioning, as designer, manufacturer, and retailer of lighting products.
The key growth category for BLX is its trade business, currently making up ~40% of group revenue as of FY25, targeting 50% by FY28, which we estimate will grow at a 3- yr CAGR of 10% from FY25-28e. Comparatively, the more mature retail business is expected to grow ~4%, driven by a stable 4-store rollout per annum.
The broker also said the trade segment has benefited from a housing boom versus the retail business stabilising due to cost-of-living pressures and less discretionary income available.
Overall, it expects the total group to grow at a rate of ~7% per annum as it continues to take market share from single-owner operators and expands further into trade and commercial avenues.
Buy recommendation from Bell Potter
The broker has initiated coverage on this consumer discretionary stock with a price target of $3.35.
Yesterday, Beacon Lighting Group shares closed at $2.96.
This means Bell Potter's price target indicates an upside of approximately 13.18%.
The broker said it views the company's leading market position in a fragmented market (~12% market share) and vertically integrated business model (FY25 GM ~69%) as attractive and unique characteristics for a specialty goods retailer.
We believe the business is well positioned to take advantage of a recovering retail environment, supported by a strong housing market and construction outlook.
