Woolworths Group Limited

Customer as well as Brand Metrics Supported WOW’s Q1 FY 2019: Woolworths Group Limited (ASX: WOW) had earlier published the results for Q1 FY 2019 i.e. 14 weeks ended September 30, 2018. The company’s sales stood at $14.8 billion in Q1 FY 2019 which implies the rise of 1.9% on the YoY basis. The company’s management stated that even though Q1 FY 2019 was challenging, Woolworths Group witnessed favourable momentum with respect to the customer as well as brand metrics particularly in the Australian Food which depicts the business’ strength.

The company’s Australian Food witnessed sales amounting to $9.87 billion which implies the rise of 1.9% on the YoY basis. The company stated that, at the start of the quarter, this business witnessed some challenges as its sales got impacted by the adjustment of the team as well as the customers with regards to single-use plastic bags removal. However, timing change with regards to Earn and Learn and competitor continuity program’s impact also weighed over the Sales of Australian Food.   

 
WOW’s First Quarter Sales (Source: Company Reports)

Decent Position from Key Margins Perspective: Woolworths Group Limited happens to be in the decent position with respect to the important margins perspective. The company ended FY 2018 with net margins of 2.9% which implies the rise of 0.2% on the YoY basis. The company’s net margin is also higher than the industry median of 2.7%. Therefore, it can be said that the company has been efficient in managing the expenses and has been following a disciplined approach towards cost management. The company’s EBITDA margin stood at 6.5% in FY 2018 while the industry margin was 5.3%. The company is also possessing a decent position in its return on equity. WOW’s ROE stood at 16% while the industry median happens to be 12.7%.

Significant Opportunities Available for Woolworths Group: Woolworths Group Limited is of the view that there are substantial opportunities which could help in the business improvement and the company has maintained its focus to tap those opportunities. Withregards to Australian Food, the company happens to have plans which could support the fundamentals.

However, the regards to the New Zealand Food, the company stated that they have been making deployments towards CountdownX so that its robust position with respect to online is ensured as well as the sales momentum can be maintained.

Stock Recommendation: On the daily chart of Woolworths Group Limited, Exponential Moving Average or EMA has been applied and default were considered for the purposes. As per the observation, it was noticed that the stock price has crossed the EMA and has trended in the downward direction.

However, the company is possessing a decent position with respect to the margins which might support the company moving forward and might attract the attention of market players.

Given the backdrop of the above-mentioned factors, we maintain our “Hold” rating on the stock at the current market price of A$29.610 per share (down 1.399% on 30 January 2019).

Coles Group Limited

A Look at Coles’ Strength: Coles Group Limited (ASX: COL) had earlier made an announcement with regards to its supply chain modernisation. The company stated that execution with regards to definitive contracts with WITRON Australia Pty Ltd for the development of 2 new automated ambient distribution centres had been done. The company happens to possess strengths which could support the company moving forward. It carries out activities in the industries which are possessing defensive attributes.

Moreover, the company happens to have a strong cash flow generation capability which could support the company moving forward. The company is expected to be benefited by the “Fresh Tomorrow” strategy as this could help in terms of shareholder returns as well as in customer experience.

Improvement of Fresh Offer Might Support COL: Coles Group Limited had been witnessing robust fresh sales growth as outlined in the below diagram. The company would be improving as well as innovating its fresh offer and would be maintaining its focus towards giving great quality Australian-grown products. The company would also be joining hands with its suppliers. The company would be working towards its own brand portfolio growth.  


Coles Fresh Sales (Source: Company Reports) 

Moreover, Coles Group Limited focuses on reducing the cost base and utilizing the technology so that modernized supply chain, as well as simplified store environment, can be delivered. Coming to the company’s stock performance from the past few months, Coles Group Limited’s stock has delivered the return of 7.24% in the past one month. However, the market capitalization of Coles Group stood at $16.79 billion.

Moving forward, the company is expected to benefit by its “Fresh Tomorrow” strategy as well as by its robust cash flow generation capability. Today the price is up by 1.271% and is currently trading slightly towards the 52-week higher level. Hence, we maintain our watch stance on the stock at the current market price of $12.750.  

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