Should You Invest in Retail Stocks: A Look At HMC, WOW and RFG   

  • Oct 17, 2019 AEDT
  • Team Kalkine
Should You Invest in Retail Stocks: A Look At HMC, WOW and RFG   

Retail sector is that part of economy which is engaged in the sale of goods through stores or through online platform to the public. Australia is one of the most urbanised societies in the world and has a significantly high per capita GDP. Prospect of the Australian retail sector is dependent on customer buying behaviour, which is being influenced by technological advancements. In terms of revenue, Australia ranks at the 10th position among leading e-commerce markets across the globe. Let us now have a look at some of retail stocks listed on the Australian Stock Exchange.

Home Consortium (ASX: HMC)

Home Consortium (ASX: HMC) is engaged in the business of investing in and managing properties including re purposing freehold and leasehold properties in order to receive rental income and to achieve capital growth.

HMC Snapshot (Source: Company’s Report)

Non-Executive Director Equity Plan:

On 11 October 2019, the company issued a non-executive director equity plan to provide the opportunity for directors to acquire rights to receive securities in the group through sacrificing a portion of their fees.

Employee Equity Plan:

On the same day, the company also issued employee equity plan, enabling the Board to offer awards to employees which provide the opportunity to acquire securities for the purpose of attracting, motivating and retaining employees; rewarding employees for achieving individual and group performance; aligning the interests of employees with those of securityholders; and facilitating conduct and good risk practices through the use of clawback and malus provisions.

Business Highlights :
  • During the year to 30 June 2019, the group sold four investment properties, out of which two were held for sale for gross proceeds of $43 million.
  • During the financial year, the company exchanged a sale agreement to acquire a leased property at Coffs Harbour and a put and call option agreement with another leased property in Queensland.
  • After the end of financial year, the group exchanged a sale contract and paid a full deposit for the acquisition of a leasehold property, Hawthorn East. All of the above-mentioned properties are expected to settle before 31 December 2019.

Financial Performance (as at 30 June 2019)

  • Although revenue during the year went up to $49.246 million from $14.156 million in FY18, the company reported loss after tax from ordinary activities of $22.583 million as compared to a profit of $516.295 million in FY18.
  • During the year ended 30 June 2019, the company was in good position, as total assets went up to $1,108 million from $898.887 million in FY18.

HomeCo is forecasting a fully franked dividend yield of 6% for the period from completion to 30 June 2020. The growth outlook in funds from operations per security and dividends will be underpinned by mainly fixed rental reviews in leases, future income from centres to be redeveloped and organic growth opportunities within the underlying asset portfolio. The Group will maintain a capital structure with a target gearing range of 30% to 40% and initial gearing of 31.8% at completion.

The stock of HMC was trading at $3.690 on 17 October 2019 (AEST: 2:20 PM), up by 0.82% from the previous day.

Woolworths Group Limited (ASX: WOW)

A consumer staples sector player, Woolworths Group Limited (ASX: WOW) is engaged in retail activities, operating supermarkets, Endeavour Drinks stores, and hotels. The group also has online operations for its primary trading divisions. The company is scheduled to hold is 2019 AGM and EGM on 16 December 2019.

Marley Spoon Secures $8 Million Funding Deal: Woolworths Group and Union Square Ventures extended their current investment in Marley Spoon by ~$4 million each. The loan from Woolworths has a term of six months and bears interest at a fixed rate of 7% p.a.

Dividend/Distribution: The company distributed an ordinary fully paid dividend of $0.57 on 30 September 2019 with a record date of 4 September 2019.

Financial Performance (as at 30 June 2019):
  • The group delivered an improved financial performance in H2 with normalised sales and EBIT growth of 3.4% and 5.0% for the year, respectively. Online segment showed no signs of slowing with growth of 31.6% in FY19, driven by increasing demand for convenience from customers.
  • Proceeds from the sale of Woolworths Petrol to EG Group of $1.7 billion were returned to shareholders by way of an off?market share buy?back.

Source: Company’s Report

Business Achievements
  • An important achievement for FY19 was transition from the use of plastic bag and an active food waste diversion programme was also enabled which helped in saving surplus fresh food and supplying it to hunger relief charity partners.
  • The company also saw the launch of new Woolworths Supermarket store concepts, employing the latest in sensible technology to drive greater efficiencies and make it simpler, safer and a better experience for team and customers.
  • From FY20, the company will narrow the working capital measure to inventory days, as it can sharpen the focus on productive inventory management throughout the Group.
  • The company is also planning to increase the weighting of online portion of total customer satisfaction from 25% to 30% when customer satisfaction results are measured, reflecting the importance of digital strategy on the future success.
  • The company also aims to separate the drinks and hospitality businesses from Woolworths Group, which may impact the remuneration framework including unvested awards under the employee share plans.

The stock of WOW was trading at $37.965 (AEST: 2:46 PM) on 17 October 2019, which is very close to its 52-week high of $38.420, with a dividend yield of 2.66%. On the valuation front, the stock of market cap of $48.3 billion is trading with a P/E multiple of 18.58x. The performance of the WOW stock went up by 22.36% in the past six months (as per ASX).

Retail Food Group Limited (ASX: RFG)

Retail Food Group Limited (ASX: RFG) is engaged in ownership, development and management of coffee houses, bakeries and cafes. In addition, the company provides wholesale supply of coffee and allied products to existing brand systems and third-party accounts and warehousing, manufacturing and distribution businesses.

Upsized Underwritten Statement:

RFG announced a fully underwritten placement of 1,700 million ordinary shares at $0.10 per share to raise $170 million before costs. The company also intends to offer a Share Purchase Plan at $0.10 per share to raise up to a further $20 million before costs. Proceeds from the equity raising program including placement and share placement would be directed towards repayment of debt, strengthening the company’s balance sheet and providing working capital.

Meanwhile, the company also unveiled that its proposed refinancing of senior debt arrangements includes debt repayment, debt write-off and new $75.5m facility scheduled for maturity in November 2022.

Business Highlights:

During the year ended 30 June 2019, underlying EBITDA was in the guidance and stood at $50.7 million and revenue went down by 6.5% to $349.8m. The company’s performance during the year was impacted by several factors including planned reduction of outlets following 2018 strategic domestic store network reset and decline in domestic franchise new / renewal activity and international licenses.

  • RFG is starting to witness the positive impacts of the vast business improvement measures being implemented across the group as part of its turnaround strategy and management remains focused on the execution of Six Point Plan to continue to stabilise performance.
  • The company would continue to roll out its marketing and product strategy.
  • Additionally, it would explore options to reduce the debt.
  • The company is expecting its underlying EBITDA to be in the range of $42 million to $46 million in FY20.
  • Store numbers are expected to stabilise at approximately 827 trading stores at the end of FY20.

Source: Company’s Report

The stock of RFG was trading at $0.160 (AEST: 03:06 PM) on 17 October 2019, which is very close to its 52-week low of $0.125.


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