The U.S markets were shut due to the labor day holiday. European shares edged higher to close near a recent one-month peak on Monday, with merger and acquisition speculation about British broadcaster ITV helping media stocks and Novartis leading drugmakers. Novartis   up 4.3 percent, was the top gainer on the FTSEurofirst 300 index on news a new medicine from the company could replace drugs that have been central to treating heart disease for a quarter of century. 

There were more positive performances from Asian stock markets. In Tokyo the Nikkei 225 rose 0.3%, while the Shanghai Composite index climbed 0.8% even as the latest data releases provided further evidence that the Chinese economy was losing momentum. The official, manufacturing purchasing managers’ index fell to 51.1 in August from 51.7 the first fall since February.


Novartis Daily Chart (Source – Thomson Reuters)

S&P ASX 200was up by 3.9points or 0.07 %on Friday and closed at 5629.8 points.  Iron ore was trading at $US87.10 a tonne, down 0.9 per cent. Minbos Resources (MNB) has announced the appointment of their new CEO in Lindsay Reed. APPlabs (ALA) has been accepted into the Apple Consultants Network which is a global accreditation for independent Apple approved service providers.

Gentrack Group (GTK) has signed a substantial upgrade contract with a leading Australian based energy utility customer. Smartgroup Corporation (SIQ) has acquired St Vincent’s Hospital (Melbourne) as a new salary packaging client. Seven West Media (SWM) has secured the broadcast rights to the Gerry ­Harvey-owned Magic Millions horse racing carnival. Karoon Gas (KAR) was among the top performers. To read our latest report on Karoon Gas – Click Here. The following stocks will trade ex-dividend today:

AGL Energy, Amalgamated Holdings, Amcor, Beacon Lighting, Boral, ClearView Wealth, Cochlear, PanAust, Treasury Wine Estates.



Karoon Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-



Stock of the Day – Wesfarmers (WES) 



Wesfarmers delivered an adjusted 6% increase in fiscal 2014 net profit after tax or NPAT of AUD 2,398 million with revenue up 4% to AUD62.3 billion. The retail assets which contribute to 85% of earnings is the largest driver to growth offsetting weakness from the resource and industrial safety divisions. Coles and Bunnings remain the standout contributors to group earnings as they continue to increase their operating margins by lifting sales volume while offering customers better value by lowering product prices.


Distributions to shareholders (Source – Company Reports)

With food and liquor sales of AUD 29.2 billion from Coles, and AUD 8.5 billion in hardware sales from Bunnings, the group generates cost advantages by negotiating favorable term from suppliers and spreading operating costs over a large revenue base. Coles increased fiscal 2014 revenue by 4.5% to AUD 37.4 billion with earnings before interest or tax or EBIT up 9% to AUD 1,672 million.


Ongoing gains in supply chain efficiency (Source – Company Reports)
 
Both Coles and close competitor Woolworths are aggressively rolling out more stores to build scale and so ramming home their competitive advantage from distributing operating costs over a larger revenue base. We expect the supermarket industry to further consolidate around both Coles and Woolworths at the expense of the smaller independent retail channel which will find it increasingly difficult  to match prices from majors and generate acceptable  returns.


WES Daily Chart (Source – Thomson Reuters)

Bunnings increased fiscal 2014 revenue by 12% to AUD 8.5 billion with EBIT up 8.3% to AUD 979 million. These reflect strong demand by consumers for the Bunnings hardware business model  with like for like sales growth up 10% in the fourth quarter and operating margins which many retailers would envy at 11.5%. Bunnings has 80 stores in the pipeline and 19 under construction with the group making it increasingly difficult for Woolworths with its master brand to capture a sizeable segment of the big box hardware market. We reiterate our HOLD recommendation on Wesfarmers.

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