Market Analysts: A “Buy” For Coles

  • Nov 22, 2018 AEDT
  • Team Kalkine
Market Analysts: A “Buy” For Coles

Amid markets talking about the future potential of new player on ASX, Goldman Sachs analyst pitched “buy” for Coles.

The supermarket group Coles, so far operating under parent company Wesfarmers Limited, made its debut on Australian Securities Exchange on Wednesday.

Analyst told its investors that they foresee the retailers’ earnings before interest and tax to grow 7.1 percent annually in three fiscal years to 2021.

Officially listed as Coles Group Limited with the ASX code COL, the group started trading at $12.49 per share with market capitalization of $17.07 billion. The stock traded at a peak of $13.37 before settling at $12.75, well within the market expected range of $10.89 and $14.52.

Goldman told that ‘buy’ recommendation is based on 0.5 percent rise expected in the growth outlook for supermarket sector in the next two years. This translates a “modest improvement” from currently prevailing 4 percent to 4.5 percent growth expected in the supermarket sector by 2020.

In today’s trading session, 5.67 million Coles’ shares changed hands, but the stock traded flat, closing at $12.750 with market capitalization of $17.01 billion as on 22 November 2018.

The retailer has inked an agreement for supply chain automation with German company Witron which as per market experts will allow for more defensive long-term margins to Coles.

Coles Group has earlier announced to return 80 to 90 percent of its underlying profit to its shareholders. Post demerger, the company plans to declare its first dividend in September 2019. As per the company’s information, this dividend will be based on Coles’ 7-months earnings following $20 billion separation from Wesfarmers.

Before hitting the ASX Board, the group has covered the journey of 104 years which translates its origin in 1914 as a variety store in Collingwood, Victoria. But now positioned as a leading Australian retailer, the company offers a wide network of physical stores and online platforms to provide consumer staples including fresh food, groceries, household goods; liquor; fuel and financial services.

The company is broadly divided into three segments that includes Supermarkets, Liquors and Convenience. Its other division comprises Property and Coles’ 50 percent holdings in flybuys, a joint venture with Wesfarmers.

In FY2018, Coles sales revenue of $39,288 million was broadly in line with the prior year, with higher Coles Supermarket and Coles Liquor revenue offset by lower Coles Convenience revenue. Its pro forma earnings before interest and tax (EBIT) declined to $1,414 million for the year ended 30 June 2018.

Moreover, Wesfarmers stock price plunged as much as 27.72% on the day of Coles debut and continued trading in red today with a decline of 2.003% to last trade at $31.320 on 22 November 2018.


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