WESFARMERS LIMITED (ASX: WES)

WES Details
 
Demerging non-core assets: Recently, Wesfarmers announced that all the conditions precedent for the sale of its Curragh coal in Queensland to Coronado Coal Group have been met and this sale will deliver a value to its shareholders. This has allowed the customers and employees of the Curragh to work with a leading coal producer and will help in expansion of markets in Australia. On 22 December 17, it agreed to sell Curragh to Coronado Coal Group (a leading US producer of metallurgical coal) for about $700 million under an agreement which includes a value share mechanism linked to future metallurgical coal prices. Under Wesfarmers ownership, while Coles position as a leading Australian retailer was attempted to be restored, the group has now indicated its intention to demerge Coles. Distribution of Coles shares are expected to qualify for demerger tax relief which is subject to ATO ruling. The group is also inviting investment banks for manging the strategic move which has been flagged to turn out to be a big deal of 2018.
 

Merger Outlook (Source: Company Reports)
 
Meanwhile, UK market conditions remain challenging and the group might consider getting rid of the UK Home Improvement market. The group has been under pressure from Bunnings’ expansion in the UK. While cash generative assets and a strong balance sheet can continue to support Wesfarmers’ capacity, the share price has climbed up by 1.80 per cent in the past six months but was down by 4.02 per cent in the past one week. Given the scenario, the stock seems “Expensive” at the current market price of $41.60
 

WES Daily Chart (Source: Thomson Reuters)
 

Woolworths Group Limited (ASX: WOW)

WOW Details

Increasing market share: Woolworths has been tracking successfully in terms of increasing its market share (over 30%) over rivals including Coles and has higher return on equity in comparison to WES and Metcash. It is being consistent in terms of the high-quality supermarket business. The group’s efforts on store renewals, IT and digital investment are auguring well with its long-term strategy while this also calls for proper capital management. In November 17, Woolworths Group Board approved the establishment of the Woolworths Group Non-Executive Director Equity Plan (NED Plan). NED Share Rights will be allocated to the participating non-executive directors on a quarterly basis by the trustee of the Woolworths Group Non-Executive Equity Plan Trust. The Company disclosed that one of its director Gordon Cairns has an indirect interest in the Company and all the shares are held by Bond Street Custodian Pty Limited on behalf of Mr Cairn’s superannuation fund. He holds 26,625 shares and 923 of NED Share Rights for a consideration of $24,991.61. Meanwhile, the group declared a fully franked interim dividend of 43 cents per share which was 26 per cent higher as compared to the corresponding period in the prior year.
 

Dividend Distributions (Source: Company Reports)
 
The Group opened net 10 new Woolworths Supermarkets and 3 Metro stores and 35 Upgrades. Its focus is to improve its Voice of Customer scores and will keep investing in the prices for customers. Australian Food will begin to cycle the strong second half sales recovery in FY17 which may see a moderation in the sales growth rate for the second half, and for the first seven weeks of 2H18, Australian Food comparable sales growth has been approximately 3.7 per cent which was impacted by the timing of New Year’s Day. The stock prices were up by 5.36 per cent in the past six months and the stock still has the potential to grow. We recommend a “Buy” on the stock at the current market price of $26.39
 

WOW Daily Chart (Source: Thomson Reuters)
 

Metcash Limited (ASX: MTS)

MTS Details

Challenges owing to increased competition: UBS Group AG and its related corporate bodies ceased to be a substantial holder of Metcash since 21 March 2018. Macquarie Group Limited also ceased to be a substantial holder of the Group since 18 December 17. On the other hand, Anne Brennan was appointed as a non-executive director of the Company while the group disclosed to the ASX that Anne Brennan doesn’t have any kind of interest in the Company. Scott Marshall was appointed as the Company’s Chief Executive of the Supermarkets and the Convenience Pillar after the resignation of Steven Cain.
 

Past Financial Performance (Source: Company Reports)
 
Group’s EBIT for the six months ending 31 December 17 increased by 18.7 per cent as compared to the same period in the prior year and amounted to $152.0 million.  Reported profit after tax increased by 24 per cent and amounted to $92.9 million. Average net debt for 1H18 was $280 million, and for 1H17, it was $375 million. Further, with more competition creeping in, MTS’ IGA has been witnessing some loss in terms of its market share, as seen in last one year. While, the stock price has been up by 16.17 per cent in the past six months and by 1.31 per cent in the past one week; it looks “Expensive” at the current market price of $3.10
 

MTS Daily Chart (Source: Thomson Reuters)

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