Are Australian supermarket stocks relatively immune to global market turmoil?

Amid the growing number of coronavirus cases across the globe, the fear of an imminent recession keeps rising. The stock markets have been battered with an air of uncertainty around the current situation.

There has been panic buying of products including toilet paper, sanitisers and canned food items. In a measure to curb the panic buying caused due to the coronavirus pandemic, major supermarket chains have put limits on purchasing of food staples. In Australia, restrictions have been imposed by Coles and Woolworths on certain goods so that there is stock available for everyone and to prevent people from stockpiling. The restrictions have been put on paper towels, hand sanitisers, pasta, flour, and paper tissues per transaction, among other items. Further, Coles intends to temporarily suspend the change-of-mind refund policy to reduce over-purchasing.

Panic buying or not, the demand for a variety of products available in the supermarkets have led to an unexpected rise in sales and thus, aiding the financial performance of these chains. As things stand, it seems that the supermarket chains are likely to profit from the current scenario even further.

Let us look at four ASX-listed supermarket stocks - COL, WOW, MTS, WES, and their recent performances.

Coles Group Limited (ASX:COL)

Coles Group Limited is an Australian Company that operates multiple retail chains. The Company is principally engaged in the selling of groceries and food via Coles, its supermarket chain. Coles is also engaged in the selling of petrol and liquor through its Coles Express and Coles Liquor outlets, respectively.

The Company recently announced a dividend distribution of $0.300 per security fully franked with a payment date of 27 March 2020.

On 18 February 2020, Coles had announced that Wesfarmers had sold 4.9% of the issued capital of COL for the total pre-tax amount of $1,050 million. After the sale, Wesfarmers holds a 10.1% interest in Coles.

Decent performance in 1H 2020: Coles reported a 3.3% growth in group sales revenue (excluding Fuel sales and Hotels) to $18.8 billion with modest sales revenue growth across Supermarkets, Liquor and Express. The Company reported 0.4% increase in the Group EBIT (pre-AASB 16 basis) to $725 million, which was partially driven by solid demand for the divestment properties.

Coles delivered $95 million as cost-out due to the efficiencies in supply chain and Store Support Centre. The Company’s Own brand crossed $1 billion in sales.

Outlook:

  • Comparable supermarket sales in the third quarter are in line with the second-quarter figures.
  • Incremental costs linked with plastic bags removal and flybuys promotions will not be there in 2H FY2020.
  • Gross operating CAPEX on track for $700-$900 million FY spend.
  • Net property inflow predicted in the range $130 million -$180 million.

COL stock ended the day’s trade at $15.880 on 16 March 2020, a decline of 1.059% compared to the previous closing price.

Woolworths Group Limited (ASX:WOW)

Woolworths Group Limited one of the most prominent retail players in Australia which also operates in New Zealand. The Company operates general merchandise consumer stores and more than 1027 supermarkets, pubs, food, accommodation, and gaming operations. WOW is also involved in the procurement of food, liquor, and products.

The Company recently announced a dividend distribution of $0.460 per security fully franked with a payment date of 09 April 2020.

Robust growth in sales and EBIT in 1H 2020: WOW, for the first half of 2020, reported a 6% growth in sales from continuing operations to $32.4 billion and 8.5% rise in the NPAT from continuing operations attributable to equity holders of the parent entity before significant items to $979 million. There was an 11.4% increase in the EBIT from continuing operations to $1,893 million (before significant items).

In the Australian Food segment, the Company posted an 8% increase in EBIT in the first half driven by strong sales growth and despite high cost due to higher team member costs on the back of new Enterprise Agreement. During the first seven weeks of H2 F20, the Company has experienced a subdued environment resulting in about 3% total sales growth and about 2% comparable sales growth of the segment.

During the first half, Endeavour Drinks’ delivered the total sales growth of 4.7%. However, in the second quarter, the segment’s performance was affected due to weak market conditions and promotional activity of competitors, mainly over the Christmas and New Year period.

1H FY 20 Financial Performance (Source: Company Reports)

1H FY 20 Financial Performance (Source: Company Reports)

WOW stock ended the day’s trade at $36.320 on 16 March 2020, a decline of 1.97% compared to the previous closing price.

Metcash Limited (ASX:MTS)

Metcash Limited is a leading Australian Company engaged in the wholesale distribution and marketing of diversified business products across food, grocery, hardware and liquor sectors.

Reported a loss after tax in 1H FY2020: Metcash, for the first half of 2020, reported a 0.5% growth in the group sales (including charge-through sales) to $7.2 billion. The Company delivered a loss after tax of $151.6 million, including the post-tax impairment of $237.4 million post the loss in the 7-Eleven contract compared to a reported profit after tax of $95.8m in 1H19 Pre AASB16.

The Company’s underlying profit after tax (pre AASB16) had declined to $95.7 million in 1H 2020 from $100.3 million in 1H 2019. Further, in 1H 2020, the group’s underlying EBIT (pre AASB16) decreased by $8.4 million to $149.7 million. There was a decline of $7.8 million in Food EBIT to $85.2 million due to increase in contribution from the resolution of onerous leases in 1H19, $0.5 million rise in Liquor EBIT to $29.6 million due to higher sales, fall in Hardware EBIT by $0.5 million to $37.3 million driven by resilience in cycle downturn that has negatively affected trade sales.

1H FY 20 Financial Performance (source: Company Reports)

1H FY 20 Financial Performance (source: Company Reports)

MTS stock ended the day’s trade at $2.410 on 16 March 2020, a decline of 0.823% compared to the previous closing price.

Wesfarmers Limited (ASX:WES)

Wesfarmers Limited is an Australian giant that engaged in home improvement, apparel and general merchandise, business in chemicals and fertilisers, office supplies, and industrial and safety products.

On 18 February 2020, WES sold 4.9% of the issued capital of COL for the total pre-tax amount of $1,050 million. After this sale, Wesfarmers held 10.1% interest in Coles.

5.7% increase in the NPAT in 1H 2020: In the first half of 2020, WES reported a 5.7% increase in the NPAT to $1,142 million and a 6% rise in revenue to $15,249 million. During 1H 2020, the Company had completed the acquisition of Kidman Resources Limited and Catch Group Holdings Limited, which resulted in a decrease in free cash flows for the period.

Revenue from Bunnings grew 5.3% to clock $7,276 million, Kmart group revenue was up 7.6% to reach $4,990 million, Industrials revenue increased by 1.7% to $889 million, and Officeworks revenues grew 11.9% to $1,231 million.

WES stock ended the day’s trade at $35.850 on 16 March 2020, a decline of 5.284% compared to the previous closing price.


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