Buzz Around Consumer Staples - A2M, WOW & COL

On 13 January 2020, the three consumer staple stocks in discussion under this article were buzzing on ASX.

NZ-based dairy and allied products business, A2M, announced its additional changes in the organisation, following the departure of CEO last month. The company notified about the departure of the CTO and the appointment of new CFO.

Supermarket giants, Coles and Woolworths were under the radar of a foreign brokerage, which provided its views on the supermarket operators. The media noted that the broker has favoured Woolworths over Coles, saying that the former is positioned to leverage improved industry dynamics.

Let’s discuss these three businesses.

The a2 Milk Company (ASX:A2M)

In an exchange release on 13 January 2020, A2M reported that Craig Louttit has elected to step down from the role of Chief Financial Officer, and he would be continuing with the role of Deputy Chief Financial Officer.

Race Strauss has commenced his role as the Chief Financial Officer of the company, and he brings in strong experience in the packaged goods segment along with relevant international experience, especially in China and other Asian regions.

Mr Strauss has spent over 20 years at Unilever, and recent roles include seven-year stints as Chief Financial Officer with Jetstar and Qantas Airways Limited (ASX:QAN).

In addition, the company notified that its Chief Technical Officer, Phil Rybinski would be departing to pursue other interests. A2M’s Chief Operations Officer – Shareef Khan would assume the responsibility of technical functions on an interim basis.

The company has been undergoing significant leadership overhaul since late last year. In December, it notified that Jayne Hrdlicka had agreed to step down from the role of Managing Director & CEO.

It was noted that the Board commenced a global search for the new CEO role, while former CEO of the company – Geoffrey Babidge commenced his term as the interim CEO.

The release reported that the Board had hired Jayne, given her ability and experience in developing and implementing strategy, and they endorse the strategy developed by her and the leadership team.

Further, the company reaffirmed its outlook that was provided in November 2019 during the Annual General Meeting. The company anticipates:

• EBITA margin percentage in the range of 29% to 30% for full year.
• Half-year 20 revenue in the range of $780 to $800 million.
• Half-year 20 EBITDA margin percentage of 31-32%.

On 13 January 2020, A2M last traded at $14.210, down by 1.113% from the previous close. Over the year, the stock has delivered a return of +33.06 per cent, with a return of -8.24% in the last six months.

Coles Group Limited (ASX:COL)

Coles has a presence in the Australian market since 1914, and it provides everyday products including fresh food, groceries, general merchandise, liquor and fuel through its store network and online platforms.

Since its demerger, the group is being led by Steven Cain. During the previous year, the group undertook two significant decisions to improve its product offering and competitiveness.

It is building two automated ambient temperature distribution centres in Queensland and New South Wales, respectively, and the distribution centres would be utilising the Witron automation technology.

Secondly, the group commenced a partnership with Ocado, a UK-based leading online end-to-end supermarket operation. It would be building two customer fulfilment centres in Sydney and Melbourne, respectively, and leveraging them to build a customer website and home delivery system.

Also, At Coles Express, the group restructured its agreement with Viva Energy, which would see the transfer of retail fuel price setting responsibility to Viva, and the group would earn a commission on the fuel sales.

For Liquor business, the group established a joint venture with Australian Venue Co. The JV partner has the operational responsibility and economic interest in over 86 hotels that were operated by the group. And, the group’s interest and focus remain in the retail liquor operations, with whole interest.

In October 2019, the group entered the Australian debt markets with a multi tranche $600 million transaction. The transaction was for the fixed rate Australian dollar medium term notes, consisting $300 million seven-year notes and $300 million ten-year notes.

The seven-year tranche was priced at a coupon of 2.2 per cent and the ten-year tranche was priced at a coupon of 2.65 per cent. The transaction was strongly received by Australian and Asian debt investors, and the issue would improve the average debt maturity profile of the group.

It was noted that the proceeds would be used to replace some of the bank debt facilities of the group that were established at the time of demerger from Wesfarmers Limited (ASX:WES).

On 13 January 2020, COL last traded at $15.470, down by 1.213 per cent from the previous close. Over the year, the stock has delivered a return of +35.45 per cent, with a return of +12.57% in the last six months.

Woolworths Group Limited (ASX:WOW)

Woolworths Group is moving to another overhaul for its hotels and liquor businesses. In December 2019, the group’s restructuring scheme was approved by the shareholders while court approval was also received by the group during the month.

As per the plan,

• The group would be implementing the restructuring scheme, under which it will combine its drinks and hospitality businesses for creating Endeavour Group (on 2 February 2020);
• On 4 February 2020, the group intends to implement the ALH merger to combine Endeavour Group with the interest of Mathieson Group in ALH.

During the Extra-Ordinary General Meeting, the Chairman stated that the group has been undertaking strategic decisions to simplify the business structure of Woolworths.

With this proposed transaction, the Board believes that both businesses would be able to emphasise on evolving customer needs while providing room to realise the growth potential.

Woolworths & Endeavour Group (Source: EGM Presentation, December 2019)

Woolworths intends to maintain the interest of around 15 per cent in the new group. After the completion of Stage 2 in February, the group would be separating the Endeavour Group through a demerger or other value accretive transaction.

On 13 January 2020, WOW last traded at $37.43, down by 1.31 per cent from the previous close. Over the year, the stock has delivered a return of +26.62 per cent, with a return of +9.65% in the last six months.

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