Bell Potter just initiated coverage with a buy rating on this consumer discretionary stock

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. 

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.

The post Bell Potter just initiated coverage with a buy rating on this consumer discretionary stock appeared first on The Motley Fool Australia.

Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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