Is Panic Buying a Silver lining for Retailers

  • Mar 18, 2020 AEDT
  • Team Kalkine
Is Panic Buying a Silver lining for Retailers

It is now evident that the coronavirus outbreak has forced equity markets all around the world to enter into bear cycle. As a consequence of this, it has become increasingly difficult for investors to find any good investment opportunity in the current uncertain time.

As the disease spreads, the panic among the general public has also increased. However, this panic has turned out to be a good thing for retail and supermarket owners, as people have started to buy consumer staples products in large quantities.

Investors have taken a hint from this and have started to invest in consumer staples stocks especially those who own retail and general stores. Yesterday on Australian stock exchange (ASX), a drastic improvement in the stock prices of many Australian consumer staples companies was observed. Australian retailers like Coles, Woolworths and Bubs were significantly up yesterday and most notable among them was Metcash Limited (ASX: MTS) which witnessed an uplift of around 27% in its share price during yesterday’s intraday trading. Even today, the stock was up by around 3.5% by the Afternoon session.

Metcash is a wholesaler to independent retailers in the food, grocery, liquor, hardware and automotive industries, and is also involved in providing merchandising, operational and marketing support across our food, liquor and hardware pillars.

Opportunities for Retailers

Although retail outlets and supermarkets are feeling pressure due to the long queues of people and a shortage of stock, but it is not the right time to complain. This is an opportunity for investors to step up their game and take advantage of the increasing demand.

Retail companies now need to make sure that there are no shortages of supplies and should try to manage the crowd. Retailers should focus on those products which are high on demand so that they can cater to the large number of consumers.

To know more Read: Supermarkets Preparedness – All about Toilet Paper and Staples’ Story

Moral Perspective

From the moral perspective, it is also the duty of retailers to make consumers understand that there is no need to panic and should discourage people who are hoarding stocks. At the same time, they should also keep in mind the safety of their employees and instruct them to follow all prevention measures to protect themselves from the coronavirus infection.

Let us now take a look at a few ASX listed consumer staple companies and see how they have been performing.

Super Retail Group Limited (ASX: SUL)

Specialty retail store operator, Super Retail Group Limited recently released its half year results for the period ending 28 December 2019. Over the period, despite the impact of bushfires as well as peak level of drought, the group managed to deliver total sales amounting to $1.44 billion with LFL (like for like) sales growth of 1.7%.

Supercheap Auto and Rebel segment experienced decent growth of 3.7% and 3.6% in topline, respectively and both segments contributed 89% to brand EBIT. For the shareholders, SUL announced a fully franked interim dividend of 21.5 cents per share.

Going forward, the company is focused on increasing annual customer value and becoming an efficient Omni-Retailer. Moreover, it is also focused on organic growth and capital discipline. On the back of current inventory levels, the company is expecting no material impact from Coronavirus on the availability of product in the short-term.

SUL stock has hit its 52 weeks low price today. The stock is trading at a PE multiple of 10.270x.

Woolworths Group Limited (ASX: WOW)

Australian leading retailer, Woolworths Group Limited managed to deliver growth in topline and bottom line during 1H FY20 despite a volatile trading environment. For the same period, sales from continuing operations stood at $32,410 million, up 6.0% on the previous corresponding period. Due to strong sales growth and even with the increased costs, the Australian Food segment reported growth of 8.0% in EBIT.

For the period, the Board declared a fully franked interim dividend of 46 cents per share, reflecting the growth of 2.2% on the back of strong financial position.

In the next half, the retail giant is anticipating higher food inflation to remain in Australian and New Zealand Food, however it is optimistic about its plans for 2H FY20 despite a slower start to Q3.

In the last five days. WOW stock has increased by 10.54% on ASX. At market close on 18 March 2020, WOW stock was trading at a price of $39.6, down by 0.627% intraday, with a market cap of around $50.26 billion. The stock is trading at a PE multiple of 19.720x.

Coca-Cola Amatil Limited (ASX: CCL)

Leading soft drinks company, Coca-Cola Amatil Limited has recently reported a rise of 6.7% in group revenues for FY19, reflecting the impact of its business initiatives throughout each market. Considering the uncertainty with respect to the duration and impact of the COVID-19 pandemic, the company recently its guidance as per which, CCL was expecting mid-single- digit earnings per share growth in 2020 as well as in the medium term.

The company has recently announced an unfranked final dividend of 26.0 cents per share for FY19, which reflects a full year ongoing payout ratio of 86.4%.

In Australia and New Zealand, the company has been observing strong growth in the Grocery Channel, however, expects the On-The-Go (OTG) channels in Australia to get weak, given consumers’ likely preference for staying at home as well as the widespread cancellation of major sporting, entertainment and cultural events.

At market close on 18 March 2020, CCL stock was trading at a price of $8.860, down by 11.489% intraday, with a market cap of around $7.25 million. The stock is trading at a PE multiple of 19.360x.

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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

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