Cyclical Stocks

Those stocks whose performance are dependent upon the economy performance at large are usually considered as ‘Cyclical Stocks’. The stock prices trade higher when the economy is booming and trade at lower levels when the economy is in a downturn. An important example is of consumer discretionary sector which is usually cyclical in nature. Three important stocks with recent updates are Wesfarmers Limited (ASX: WES), Coles Group Limited (ASX: COL) and Flight Centre Travel Group Limited (ASX: FLT).

Wesfarmers Limited (ASX: WES)

Wesfarmers Limited (ASX: WES) is involved in retailing of home improvement and outdoor living products and supply of building materials; retailing operations, general merchandise and apparel; chemical and fertilisers manufacturing; gas processing and distribution; retailing of office and technology products; industrial and safety product distribution; and management of group’s investments. Recently, a new sustainability website was launched by the company. This will enhance information sharing and frequent updates on areas relating to people (safety, people development and diversity and inclusion). Moreover, this will also have information on sourcing (suppliers and ethical sourcing and human rights) in addition to governance, environment (climate change resilience and waste and water use) and community (community contributions and product safety).

In a previous update, company’s director Jennifer Anne Westacott, acquired 1,295 shares at $38.61 per share, taking the final holdings to 5,802 direct shares and 986 indirect shares, effective October 7, 2019. Another director Anthony John Howarth acquired 112 direct shares and 225 indirect shares, taking the final holdings to 6,253 direct shares and 14,044 indirect shares, effective October 9, 2019. Director Simon William English acquired 22 shares, taking the final holdings to 1,104 shares, effective October 9, 2019.

FY19 Key Highlights for the period ended June 30, 2019: The company, including post-tax significant items of $3,171 Mn, Reported net profit after tax (NPAT) for the period at $5,510 Mn. NPAT from continuing operations increased by 13.5% to $1,940 Mn. The Board of Director declared (fully franked) final dividend of $0.78 per share, with record date and payment date on September 2, 2019 and October 9, 2019, respectively.

FY19 Key Metrics (Source: Company Reports)

What to expect: Given the diversity & resilience of portfolio, the Group remains well placed for a range of economic conditions. Businesses within the portfolio are well-positioned to continue to deliver long-term success and value creation. The company is focusing on developing deeper and broader digital capabilities, developing great talent & teams, and driving entrepreneurial initiative. With the help of its unique capabilities & platforms and recently acquired investments, the company is expected to take advantage of growth opportunities within its existing businesses.

On the stock information front

On October 29, 2019, WES was trading at $40.965 (at AEST: 3.18 PM) down 0.085%, with the market cap of ~$46.49 Bn. Its current PE multiple is at 8.420x It has generated an absolute return of 28.57% for the last one year, 14.53% for the last six months and 2.37% for the last three months.

Coles Group Limited (ASX: COL)

Coles Group Limited (ASX: COL) is involved in providing customers with everyday products, including groceries, general merchandise, fresh food, fuel, liquor and financial services through its online platforms and store network.

FY19 Key Highlights for the period ended June 30, 2019: Full year Group sales revenue (excl. Hotels and Fuel sales) for the period was reported at $35.0 Bn, an increase of 3.1% on previous year, mainly due to growth across Liquor, Supermarkets and Express (revenue from c-stores only). Group’s EBIT after excluding significant items for the period was reported at $1.3 Bn, a decline of 8.1% on previous year, mainly driven by lower Express fuel volumes, corporate costs and one-off demerger costs. The company declared final dividend of 24.0 cents per share, fully franked. The final dividend along with a special dividend of 11.5 cents per share, amounted to a total fully franked dividend of 35.5 cents per share for the financial year.

Supermarkets sales revenue for FY19 was reported at $30.9 Bn, an increase of 3.2% on previous year, mainly driven by online, new stores and successful collectable campaigns including little shop in the first quarter and Fresh Stikeez in the third quarter. Liquor sales revenue for the period was reported at $3.1 Bn, an increase of 1.9% on previous year, mainly due to impact of the First Choice Liquor Market roll-out during the year and growth in online. Under Express, C-stores sales growth for the period was reported at 1.2%.

What to expect: Despite good competition in the market, company’s Little Shop 2 campaign has again resonated well with the customer and expected to strengthen the engagement further. In Express, due to competitive fuel pricing and Little Shop 2 campaign, growth in fuel volumes has been encouraging. It is expected that building volumes to target levels will take time, therefore, the company expects earnings growth under the New Alliance Agreement to remain subdued in FY20. The Smarter Selling initiatives in FY20 are expected to deliver benefits in excess of $150 Mn.

FY19 Key Results (Source: Company released report)

On the stock price performance:

On October 29, 2019, COL was trading at $14.970 (at AEST: 3.18 PM) with the market cap of ~$19.42 Bn. Its current PE multiple is at 13.540x. It has generated an absolute return of 25.40% for the year to date, 16.18% for the last six months, and 3.19% for the last three months.

Flight Centre Travel Group Limited (ASX: FLT)

Flight Centre Travel Group Limited (ASX: FLT) is a provider and arranger of travel related services for both the corporate and leisure travel sectors. It arranges in-destination travel experience businesses including hotel management, destination management companies, tour operators and selling in bulk. Recently, the company recorded strong growth in online leisure sales in Australia during the first quarter of FY20, where leisure sales doubled during the three months to September 30, 2019, despite a relatively challenging trading climate.

For FY20 Outlook, the management highlighted that TTV was again gaining momentum early in the year, underlying profit is expected to be below the prior corresponding period during first half year, but likely to be heavily weighted towards the second half of FY20. Major factors are subdued leisure business performance in the month of November and December last year. Other important factors are unrest and uncertainty in other geographies for example the United Kingdom for Brexit and the safety concerns in the Dominican Republic impacting travel to a key destination for the US leisure business.

FY19 Key Highlights for the period ended June 30, 2019: New TTV Milestone exceeded FY18 record by almost $2 Bn, mainly due to record results in all countries and regions, apart from the Nordics. TTV growth for the period outpaced revenue growth. Revenue for the period increased by 4.5% to $3,055,268,000 as compared to previous year. Statutory Profit after tax for the period decreased by 0.2% to $264,174,000. Net profit after tax attributable to owners of the company increased by 0.1% to $263,825,000.

FY19 Key Metrics (Source: Company Reports)

On the stock price performance:

On October 29, 2019, FLT was trading at $43.080 (at ASET: 3.18 PM) down 0.116% with the market cap of ~$4.36 Bn. Its current PE multiple is at 16.490x. The stock has generated an absolute return of -2.06% for the last one year, 10.62% for the last six months and -7.76% for the last three months.


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