The Australian retail sector landscape is changing rapidly, with overseas businesses entering the market and bringing with them new approaches to retailing. So has changed the consumers’ approach of purchasing. Consumers are more tech-savvy, affluent and busier than ever. Their expectations are evolving, and technology is changing their behaviour. With the ever-dynamic market scenario, the retail companies are not only maintaining a decent and stable growth but also updating their business models to cope up with the customers’ preferences. Given this backdrop, the following retail companies are good to look at.

Super Retail Group Limited

SUL is one of Australia’s largest retailers with more than 670 stores and an annualised turnover of more than $2.5 bn with its global presence in New Zealand and China. The business is diversified with its operations in segments like sports goods, outdoor retailing and automotive parts & accessories.

Key Metrics:The company has robust fundamentals with a consistent revenue growth over the last 5 years. It is currently trading at an earnings multiple of 11.20 with average industry PE of around 20, with an upside potential going forward. The Automotive segment contributed significantly to the growth of revenue and EBIT margin by 5.3% and 11.6% respectively, in FY18, however the sports segment was highest in achieving an online sales growth of 152%. The company posted a profit margin growth of 26.03 % in FY 2018. The net cash flow from operations has come to $308.4mn in FY 2018 which grew by almost 30%. The company has a cash outflow from investing activities of $241.2mn, owing to acquisition of macpac, an apparel designer for outdoor adventure products, which contributed significantly to the revenue and profit growth in FY 2018.

The fundamentals stayed positive through to the 16 weeks of October 2018 with Supercheap Auto reporting 4.1% sales growth with Macpac recording a growth of 17.6%. The key business strategy of operating on a digital platform is expected to pay off well given the competitive environment. The company looks stable in the short-term with a CMP of $7.46, and with its robust fundamentals and diversified segments it has a good growth potential in the medium to long term. We maintain a “Hold” on SUL at the current price of $ 7.46.
 

Accent Group Limited 

Accent Group Limited (formerly RCG Corporation Limited) is the regional leader in the retail and distribution of performance and lifestyle footwear, with over 420 stores across 10 different retail banners and exclusive distribution rights for 10 international brands across Australia and New Zealand.

Key Metrics:Company owned retail sales for FY18 grew strongly to $566.9 million, which was 12% up from the prior year. This was driven by strong growth in digital sales and new store rollouts. Like-for-like (‘LFL’) retail sales for the second half of FY18 grew by 3% and were up 2% for the full year. In FY18, total digital sales, including click-and-collect and click-and-dispatch, grew significantly by 131%. The net margin grew by 50% Y-O-Y and stood at $43.95 million as of FY 2018. There has been a general trend of increasing sales and net profit for the past 5 years. It has an increasing dividend payment trend which makes it an attractive stock to have in view of 15-20% growth projection for H1 EBITDA. The company currently has an earnings multiple of 16.65x. The company traded rangebound over the past 3 months duration, with a current market price of $1.390. Being one of the top players in its segment on ASX with its strong fundamentals and robust growth historically, the stock is good to hold as the group expects to benefit from more store openings and continuous digital growth as seen in first 20 weeks of FY19.
 

Woolworths Group Ltd 

Woolworths Group is a diverse group of retail business that is on a journey to becoming a purpose-led organisation. It has its operations in diversified segments namely Australian food, New Zealand food, endeavour drinks and a portfolio of hotels and liquor outlets.

Key Metrics:The revenue for FY 2018 is $56.7 billion, a rise of 3.4% from FY 2017. However, the growth was majorly contributed by the Australian food and endeavour drinks segment. EBIT is up 9.5% from FY 2017 largely driven by the Australian food segment. Cash flow from operating activities before interest and tax was $3,775 million driven by an improvement in EBITDA of 3.8% (8.6% for continuing operations) reflecting the improved trading performance across the group. The cash realisation ratio was 101% with lower net investment in inventory compared to last year. However, there is a respite in terms of net repayable debt declining on the back of strong cash generation during FY 2018. The company is currently trading at a PE ratio of 21.85x, lower in comparison to many peers in the industry.

Currently,the stock is trading at $29.02. We are bullish on the outlook of the company in the medium-to- long term with strong growth and performance. However, with the current volatility and competition in the market it is a good option to hold.
 
 

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