02.03
Veritas Research: RONA (RON) – $15.55 – Implications of the HRTC
Veritas believes that the Home Renovation Tax Credit had two major implications: reported revenue increases at home improvement retailers such as Rona are likely a result of a one time jump and, as such, are not sustainable. During Rona’s investor day on January 25, 2010, Rona reported that customers spent over $130 million on registered projects (under the Rona Advantage plan), approximately 2.8% of consensus 2009 revenue of $4,657 million. Rona also disclosed a 15% increase in ‘installed’ sales. According to a ResMor Trust Company news release dated April 2009, 70% of Canadian homeowners planned to renovate their homes prior to HRTC’s end. Of those, 39% claimed that their decision to renovate was driven by the HRTC program. This implies that of Rona’s $130 million in registered project, $51 million dollars represented an increase in spending as a result of the HRTC, approximately 1% of forecasted 2009 revenues. Excluding the impact of HRTC, this implies RONA’s sustainable growth rate is about 1.8%, in line with management’s expectation of 2% same store sales growth going forward.
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