Stocks’ Details
 

Coles Group Limited

 
Sales Revenue Up 1.8% Year Over Year: Coles Group Limited (ASX: COL) is involved in retailing of products which include household goods, fresh food, groceries, liquor, fuel, etc., through stores and online channel. On 8^th January 2020, the company announced that the BlackRock Group ceased to be a substantial holder in the company, effective from 6^th January 2020.
 
First-Quarter FY2020 Highlight: The company recently reported 1QFY20 results, wherein, sales revenue amounted to $8.695 billion, up 1.8% on a year over year basis.Supermarkets segment sales came in at $7.705 billion, representing comparable sales growth of 0.1% on a year over year basis.Liquor segment delivered growth of 0.7% on a year over year basis, with a robust performance in First Choice.
 

Q1 FY20 Sales Highlight (Source: Company Reports)
 
Outlook: Going forward, the company might carry out further acquisitions and divestments and may form additional third-party relationships in order to execute its strategies in a more effective manner.
 
Valuation Methodology: P/CF Multiple Approach

P/CFBased Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading close to its 52-week high of $16.690. The stock gave a return of 7.89% and 18.57% in the past three months and six months, respectively. As per ASX, the stock has a market cap of ~$22.17 billion with a PE multiple of 15.45x. Notably, its net margin stood at 2.8% in FY19 as compared to the industry median of 2.0%. Also, the company had a ROE of 32.6% for the year, higher than the industry median of 13.3%. We have valued the stock using P/CF based relative valuation method, and for the said purpose, we have considered peers like Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW) and Coca-Cola Amatil Ltd (ASX: CCL), to name few. Therefore, we have arrived at a target price with an upside of higher single digit (in percentage terms). Considering the above factors, we give a “Hold” recommendation on the stock at the current market price of $16.30 per share, down 1.925% on 23^rd January 2020.
 

Metcash Limited

 
Sales Revenue Up 1.6% YoY in 1HFY20: Metcash Limited (ASX: MTS) is an Australia-based top wholesale distribution and marketing company to independent retailers in the grocery, food, liquor, hardware and automotive industries.On 22^nd January 2020, the company announced that Bank of America Corporation and its related bodies corporate, have ceased to be a substantial holder in the company, effective from 20^th January 2020.
 
Other Recent Updates:On 17^th January 2020, the company announced that Mark Laidlaw will retire and resign as the CEO of the Hardware vertical. Mark will be stepping down from his post at the end of April, after serving the company for 10 years.  In another update, the company announced that the voting power of Allan Gray Australia Pty Ltd has increased from 13.60% to 14.64%, effective from 2nd January 2020.
 
1HFY20 Financial Highlights: During the period, the company reported total sales revenue of $6,289.8 million, up 1.6% year over year. An increase in food and liquor sales during the half, was offset by a decline in hardware sales. Underlying EBIT for the period came in at $149.7 million, down 5.3% on a year over year basis. The Board declared a fully franked interim dividend of 6 cents per share during the period and a pay out of approximately 60% of underlying earnings per share.
 

1HFY20 Sales Highlight (Source: Company Reports)
 
Outlook: In 2HFY20, the company expects total supermarkets sales to be negatively impacted due to ceased supply of Drakes in South Australia from 30 September 2019. The company remains focused on opportunities for exiting onerous lease contracts.
 
Valuation Methodology: P/E Multiple Approach

P/EBased Valuation (Source: Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading below its 52-week low-high of $2.410 and $3.210. The stock gave a return of 4.3% in the past one year. As per ASX, the stock has a market cap of $2.41 billion with an annual dividend yield of 4.91%. Notably, its quick ratio and current ratio stood at 0.78x and 1.15x in FY19, as compared to the industry median 0.39x and 0.81x, respectively. We have valued the stock using PE based relative valuation method, and for the said purpose, we have considered peers like Coca-Cola Amatil Ltd (ASX: CCL), Harvey Norman Holdings Ltd (ASX: HVN) and Super Retail Group Ltd (ASX: SUL), to name few. Therefore, we have arrived at a target price with an upside of higher single digit (in percentage terms). Considering the above factors, we give a “Hold” recommendation on the stock at the current market price of $2.650, with no change as on 23^rd January 2020.
 

Harvey Norman Holdings Limited

 
PBT Up 8.4% Year Over Year in FY19:Harvey Norman Holdings Limited (ASX: HVN) is an Australia based company with principal activities of franchise, integrated retail, property and digital enterprise.  The company reported consolidated PBT of $574.56 million in FY19, an increase of 8.4% year over year,  which was mainly driven by the constant dominance of 90 Harvey Norman® company-operated retail stores overseas, the sale of equity investments in FY19 coupled with the enhanced profitability of the property segments.
 

Historical PBT (Source: Company Reports)
 
Dividend for the Year: The company declared a final dividend of 21 cents per share (fully franked) which was payable on 1^st November 2019. This makes a total dividend of 33 cents per share for the year ended 30 June 2019, which signifies an increase of 96.77% of the profit after tax and non-controlling interests. There were higher dividend payments during FY19, which totalled to $342.12 million, against FY18 dividend amounting to $267.34 million.

Valuation Methodology: P/E Multiple Approach

P/EBased Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading above the average of its 52-week low-high of $3.150 and $4.667. The stock gave a return of 35.67% in the past one year. As per ASX, the stock has a market cap of $5.41 billion with an annual dividend yield of 7.6%. Notably, its quick ratio and current ratio stood at 1.18x and 1.62x in FY19, as compared to the industry median 0.97x and 1.42x, respectively. We have valued the stock using P/E based relative valuation method and arrived at a target price with an upside of single-digit (in percentage terms). Considering the above factors, we have a watch stance on the stock at the current market price of $4.35 per share, up 0.23% on 23^rd January 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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