Stocks’ Details

Coles Group Limited

Implementation of DRP:Coles Group Limited (ASX: COL) is in the retailing of products like fresh food, household goods, liquor and fuel, etc. The market capitalisation of the company stood at ~A$19.94 Bn as on 22^nd October 2019. The company recently announced that it would be conducting its 2019 Annual General Meeting on 13^th November 2019. In another update, the company announced that it would implement a dividend reinvestment plan for its shareholders. It is expected that the DRP would operate for eligible shareholders for dividends paid, subsequent to the dividend, which was paid on 26^th September 2019. The following picture provides an overview of the group’s performance for the year ended 30^th June 2019:


Group Performance (Source: Company Reports)

What to Expect:The company expects a cumulative cost reduction of $1 billion by FY23 via Smarter Selling. COL’s objective is to provide shareholders with sustainable EPS growth as well as attractive dividend payout over the long-term. The company’s key areas of focus revolves around improved working capital management, disciplined focus on operating costs and enhanced capital allocation framework. For FY20, the company anticipates gross operating capital expenditure (excluding property) in the range of $700 Mn - $900 Mn, which is broadly consistent with FY19.

Stock Recommendation:The company stated that Smarter Selling initiatives are expected to deliver annualised benefits over $150 million in FY20. Currently, the stock is trading at a price to earnings multiple of 13.900x as compared to the industry median of 21.13x. The company has enterprise value to sales multiple of 0.53x against an industry median of 0.68x. On the stock’s performance front, it produced returns of 9.90% and 21.11% in the time frame of three months and six months, respectively. Therefore, considering the decent outlook for FY20, valuation parameters, and current trading levels, we maintain our “Hold” rating on the stock at the current market price of A$14.940 per share, down 0.067% on 22^nd October 2019.
 

Treasury Wine Estates Limited

­Retirement of CEO:Treasury Wine Estates Limited (ASX: TWE) is in the business of international wine with a portfolio of luxury, premium and commercial wines. It has a market capitalisation of ~A$11.81 Bn as on 22^nd October 2019. The company through a release dated 21^st October 2019 announced that Managing Director and Chief Executive Officer Michael Clarke would be retiring from the company in the first quarter of fiscal 2021. The company further stated that Tim Ford would be the new Chief Executive Officer, effective from the retirement of Mr Clarke in the first quarter of fiscal 2021, reflecting TWE’s strong succession planning. The following picture provides an idea of the group EBITS and EBITS margin:


Earnings Growth (Source: Company Reports)
Future Aspects:The company is well-positioned to continue the successful execution of its premiumisation strategy in FY20 and beyond. TWE’s strategic priorities primarily revolve around to (1) build a focused portfolio of priority brands, (2) drive multi-regional sourcing, (3) further strengthen its business model, and (4) grow market share.

Stock Recommendation:  On valuation front, the stock of TWE is trading at EV to Sales multiple of 4.8x in comparison to the industry average (Beverages) of 13.8x on TTM basis. The stock has a price to cash flow multiple of 27.9x against the industry average (Consumer Non-Cyclicals) of 31.9x on TTM basis. On the stock’s performance front, it produced a return of 11.72% on YTD basis. As per ASX, the annual dividend yield of the company stood at 2.32% at the current market price of A$16.940 per share. The stock is currently trading towards the higher end of its 52-week trading range of $13.380 - $19.470. Thus, in the light of above-stated facts and current trading levels, we reiterate our “Hold” recommendation on the stock at the current market price of A$16.940 per share, up 3.293% on 22^nd October 2019.
 

Coca-Cola Amatil Limited

A Look at Letter to Shareholders:Coca-Cola Amatil Limited (ASX: CCL) is involved in the manufacturing, distribution and marketing of beverages. The market of capitalisation of the company stood at ~A$7.46 Bn as on 22^nd October 2019. As per the letter to shareholders dated 9^th October 2019, the company stated that on 22^nd August 2019, it announced results for the half-year ended 28 June 2019 and stated that it has achieved strong group revenue growth of 5.2%, reflecting the results of strategic initiatives throughout the group. It added that the Australian Beverages showed pleasing progress from the Accelerated Growth Plan. As anticipated, EBIT for the segment was impacted by container deposit schemes, additional investment in “Feet on the Street” and cycling 1HFY18 EBIT benefit from $10 Mn credit in relation to the NSW container deposit scheme.


1HFY19 Results Highlights (Source: Company Reports)

Future Prospects:The company stated that the Australian Beverages is placed for growth in 2020 with the completion of the additional investments in its accelerated Australian growth plan along with the container deposit schemes in NSW and QLD, substantially embedded by the end of 2019.

Stock Recommendation:The return on equity of the company stood at 10.6% in 1H FY19 as compared to the industry median of 7.5%. This implies that the company is providing decent returns to its shareholders as compared to the broader industry. The current ratio of CCL stood at 1.53x in 1H FY19 against the industry median of 1.42x, which indicates that CCL is in a decent position to address its short-term obligation against the peer group. On the valuation front, the stock of CCL is trading at EV to Sales multiple of 2.0x in comparison to the industry median (Beverages) of 3.4x on TTM basis. Looking at the stock price movement in the recent past, the stock has produced a return of 17.61% in the time frame of six months and 26.69% on YTD basis. Thus, considering the above-stated facts, we give a “Hold” rating on the stock at the current market price of A$10.230 per share, down 0.68% on 22^nd October 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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