Story of Supermarket stocks

Woolworths Limited

WOW Details
 
Turnaround of BIG W to drive earnings: During Q3FY17, Woolworths Limited (ASX: WOW) reported a moderate sales growth of 3.7% year on year (yoy) to $13.8 billion, led by strong momentum in Australian food division with 5.1% yoy growth to $9.3 billion. Further, the company is expecting a significant ramp-up in supermarket renewals run-rate with 49 planned for H2FY17.  Currently, the company is focusing on rebuilding sustainable sales momentum for the remaining FY17 and into FY18. However, H2FY17 is expected to be impacted by higher costs in key areas such as team incentives, depreciation and team training. Given the sales data and turnaround plan in progress for BIG W coupled with further cost efficiencies going forward, the stock is expected to witness momentum. WOW has also been able to outpace Coles recently with the latest sales result. Over the past six months has moved up 16.6% on account of strategic initiatives taken to compete in the challenging business environment. We give a “Buy” recommendation on the stock at the current market price of $ 25.94

Wesfarmers Ltd

WES Details
 
Recently, Wesfarmers Ltd (ASX: WES) has decided against the potential IPO for the Officeworks as it might not generate synergies now and may not benefit the shareholders. Thus, the group has announced for retaining the division and believes it to be poised for future growth. For Q3FY17, Coles headline food and liquor sales increased by 1.2% only, at the back of investments in the customer offers/discounts. However, Bunnings Australia and New Zealand achieved sales growth of 7.7% owing to robust growth achieved in prior periods through the continued solid execution of its strategic agenda. The group made further progress on transition, separation and integration activities in the United Kingdom and Ireland, following the Home base acquisition.

The stock has fallen 4.6% in the last one month as on May 16, 2017.  Given the intense competition in the industry, challenging business environment (at the back of soft consumer spending) and added headwinds in the form of new entrants, we give an “Expensive” rating on the stock at the current market price of $ 40.23

Metcash Ltd

MTS Details

During H1FY17, Metcash Ltd (ASX: MTS) reported a meager revenue growth of 0.3% yoy to $6.63 billion while posting a 4.2% decline in EBIT to $128.1 million, led by lower earnings in food & grocery division. Further, underlying profit after tax fell 4.7% to $82.8 million largely due to the decline in group EBIT. The company expects continuous positive momentum from liquor for the remaining FY17 while the earnings from the food & grocery business is expected to be more than H2FY16 despite significant headwinds. Notably, the acquisition of HTH, created a second largest hardware retailer in the market, with servicing a retail network of ~750 bannered stores and a further ~500 unbannered stores. The stock fell about 7.8% in the last three months as on June 07, 2017, owing to weak financials coupled with increasing industry headwinds. We give an “Expensive” recommendation on the stock at the current market price of $ 2.02

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