Wesfarmers Limited

WES Details

Decent Q3FY18 Performance despite UK Operation’s Struggle: Wesfarmers Limited (ASX: WES) announced its retail sales results for the third quarter of the 2018 financial year wherein Bunnings Australia & New Zealand (BANZ) business delivered strong quarterly results albeit Bunnings United Kingdom and Ireland (BUKI) operation continued to face challenges during the quarter. Bunnings Australia & New Zealand for the quarter grew by 8.9% to $3.0 billion on the prior corresponding period (pcp). The sales were majorly driven by continued focus on delivering increased value and better experiences to customers. As a result of this, total store sales for the quarter increased by 9.1%, while store-on-store recorded a growth of 7.7% on pcp basis. During the quarter, BANZ opened five warehouses, one smaller format store and one trade centre. Further, there were 17 sites under construction at the end of March 2018 that include conversion of six former Masters stores which are scheduled to open in the Q4FY18.
 

Retail Sales Financials (Source: Company Reports)
 
On the other hand, Bunnings United Kingdom and Ireland’s (BUKI) sales were down by 6.5% to $374 million in Q3FY18 due to unusually poor weather in March that significantly affected trading, particularly in the seasonal gardening and outdoor living categories. During the quarter, eight pilot stores were opened for BUKI business and seven stores were closed (four for conversion, three permanently). Furthermore, the group recorded that third quarter food and liquor sales at grocery chain Coles rose by 1.9 %, albeit convenience sales were down by 8.0%. Total third-quarter sales growth at Coles was 0.3% on year on year basis and amounted to 9,046 million in Q3FY18. Coles Express continued to expand its network during the quarter and has opened five new sites and closed three sites, bringing the total network to 714 sites. Additionally, discount department store Kmart's third-quarter sales were up by 10.2%, while Target sales were down by 2.0% pcp. Officeworks sales increased by 7.2% pcp. Meanwhile, we give an “Expensive” recommendation on the stock at the current market price of $ 43.130, based on stiff competition in Coles Super market business and continued headwind in Bunnings United Kingdom and Ireland (BUKI) operations.
 

WES Daily Chart (Source: Thomson Reuters)
 

Metcash Limited

MTS Details

Gaining traction lately while economic conditions in WA remain soft: Up 4.4% on April 26, 2018, Metcash was seen to be gaining traction with positive views emerging on its hardware business. Recently, UBS Group AG and its related corporate bodies, became the substantial holder of the Group by holding 49,535,421 securities with 5.08 per cent of the voting power. Besides this, the Group has appointed Anne Brennan to the Board as Non-Executive Director.  The group delivered a reported net profit of 92.9 million for 1HFY18, which was up by 24% as compared to same period in prior year. Group debt reduced by $94.8 million in 1HFY18 from a net debt position of $80.8 million in April 2017 to a net cash position of $14.0 million at the end of October 2017. As a resulted of this, the average net debt reached at ~280 million in 1HFY18 from ~375 million in 1HFY17.


Debt Maturity Profile at 1HFY18 (Source: Company Reports)

Further, Food sales were down by 1.4% and amounted to $4.36 billion in 1HFY18 on the back of intense competition. With this, MTS IGA has been witnessing some loss in terms of its market share, as seen in last one year. We expect that the group will continue to face some headwinds in food business due to rise in competition and weak economic condition in Western Australia. Meanwhile, the share price climbed up by 31.01 per cent in the past six months as on April 24, 2018 and the stock is trading at high levels. We give an “Expensive” recommendation at the current market price of $ 3.53.
 

MTS Daily Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.