Wesfarmers Limited
Decent Financials: Wesfarmers Limited (ASX: WES) announced the completion of the sales of its Kmart Tyre and Auto Service business to Continental AG on November 1, 2018. The agreement was published on August 12, 2018. The selling agreement for Kmart Tyre and Auto Service included transaction worth an amount of $350 million. Further,the companyannounced the Coles retail sales results for the first quarter of the 2019 financial year on October 15, 2018 wherein Coles Supermarkets sales increased by 5.8% up to $7,657 million during the quarter, and its total sales increased by 5.0%. Total sales growth was primarily driven by the strong growth in basket size, transaction numbers and units sold, as well as improvements in fresh market share. The Liquor division recorded sales, including hotels, posted 2.1% increment for the first quarter up to $744 million. Comparable liquor sales posted 1.3% increment for the quarter largely driven by growth in basket size, and transactions. Net Interest margin was slightly down to 3.9% in FY18 as compared to 4.3% in FY17.
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Coles First Quarter Sales (Source: Company Reports)
Technically, the scrip has been in a downtrend from September till October. The scrip has shown some retracement in the current month of November. The major indicators like RSI (Relative Strength Index) and MACD (moving average convergence and divergence indicator) demonstrate a mixed view. The Stock might show some more dip in near term as per the candle formation on the charts. The market cap of WES was recorded at $52.94 bn, with P/E of 44.11x and Beta of 0.93x as on November 08, 2018. At current levels, WES is trading at higher valuations as compared to its peers and industry average with slight dip formation as per technical charts. We maintain “Expensive” recommendation on the scrip at the current price levels of $47.45.
Woolworths Group Limited
Quarterly Sales Well-Supported by Endeavour Drinks: Woolworths Group Limited (ASX: WOW) ended September 2018 quarter with total sales amounting to $14.8 billion which implies the YoY growth of 1.9% and this was mainly aided by the growth in the Endeavour drinks. The Australian Food reported sales of $9.8 billion in the September quarter implying the YoY growth of 1.9% while the sales growth in Endeavour Drinks was 3.0% YoY. The Australian Food sales growth was helped mainly by the impact of the removal of single-use plastic bags as well as because of competitor continuity program.
The BIG W sales witnessed a growth of 1.3% in September 2018 quarter on the YoY basis. The sales from ALH Hotels was slower during the same period on a YoY basis as these got adversely affected by the cycling of the key events. The operating capital expenditure in FY 2018 stood at $1.6 billion. Even though it represents a marginal rise on the YoY basis, the FY 2018 operating capex stood at the lower end of the yearly forecast and was achieved because of the disciplined deployments in regard to the renewals, digital as well as IT. Although, the management of Woolworths Limited is having an optimistic outlook and expects that ample opportunities prevail which could help the company moving forward. The New Zealand Food is witnessing the strong momentum because of the deployments are done in FY 2018, and the company plans to make deployments in CountdownX. Further, the company’s management expects that BIG W is expected to witness robust momentum as the reduction in losses are anticipated. They would also be considering the capital management initiatives.
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WOW’s Operating Capex (Source: Company Reports)
From technical standpoints, a technical indicator, i.e., Exponential Moving Average or EMA has been applied on the monthly chart of Woolworths by considering the default values. As per the observation, the stock price has just crossed the EMA and has just started moving upwards. However, since the bullish momentum might not have built up, it might witness slight fall. Therefore, any recommendation at this stage is not desirable. Hence, we maintain our “Hold” rating on the stock at the current market price of $29.350.
Myer Holdings Limited
Decent portfolio base with a focus on the customer: Myer Holdings Limited (ASX: MYR) presented its annual report for the period ended on July 28, 2018 on October 25, 2018. MYR posted a 3.2% drop in the total sales up to $3,100.6 million and the same were down by 2.7% on a comparable store basis. Operating gross profit declined by 2.9% to $1,184.4 million, while gross profit margin increased by 8 bps to 38.2% in FY18 as compared to the prior year. Net profit after tax was down by 52.2% and amounting to $32.5 million in FY18 against the prior year. On the other hand, the company operates 62 department stores across Australia. The majority of Myer’s operations are in Australia and encompass Myer department stores, sass & bide and Marcs and David Lawrence (MDL). In addition to their Australian operations, MYR has sourcing offices located in China and Hong Kong. Myer’s online business is a significant asset that continues to deliver strong growth, representing the third largest store by sales revenue.
Technically, the scrip has traded in a channel from the month of May and is continuing the same trend. The channel levels need to be breached on either side to get confirmation for the trend. At the current juncture, it is advisable to hold and watch the scrip to breach the flat zone. The market cap of MYR was recorded at $394.21 Mn as on November 08, 2018. At the current juncture, the scrip is trading at the price levels of $0.485. Weaker financials were driven by tough environment across the retail segment with sideways movement as per technical charts, exhibiting a “Hold” at the current price levels of $0.485.
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