Stocks’ Details

Woolworths Group Limited

A Decline in CODB:Woolworths Group Limited (ASX: WOW) is into food, general merchandise and specialty retailing via its chain store operations. It is having a market capitalisation of A$47.77 Bn as on 10^th September 2019. The company recently announced that Gordon Cairns made a change to his holdings in the company by acquiring 1,608 ordinary shares on 30^th August 2019. In the release of FY19 results, it was mentioned that the cost of doing business (CODB) from continuing operations as a percentage of sales stood at 24.6%, which reflects a decline of 30 basis points on the prior year on a normalised basis. The company also witnessed a reduction of 26 bps in Australian Food and a 132-bps reduction in BIG W before significant items. This reflects a strong cost control and the benefit of productivity improvements during the year. The following picture provides an overview of the sales performance for FY19:


Sales Summary (Source: Company Reports)

What to Expect:  For FY20, with respect to Big W, the company is planning to simplify its business both in stores and support office by aligning tasks to customer needs. The company is also planning to accelerate its apparel offering via investment in new fixtures and improved ranges. It was also mentioned that New Zealand food would continue to focus on delivering great prices for its New Zealand customers as well as improve fresh quality and experience.
Stock Recommendation:The company stated that the normalised finance costs witnessed a decline of 19.9%, which reflects a reduction in the average borrowing rate because of the maturity or refinancing of higher interest rate borrowings.  Moreover, EV/EBITDA of the company stood at 12.6x on TTM basis as compared to the industry average (Consumer Non-Cyclicals) of 9.2x. On the stock’s performance front, the stock has produced returns of 7.20% and 18.41% in the time period of one month and three months, respectively. Hence, considering the above-stated facts, we maintain a “Hold” rating on the stock at the current market price of A$37.680 per share, down 0.711% on 10^th September 2019.

Coca-Cola Amatil Limited

Changes to Organisational Structure:Coca-Cola Amatil Limited (ASX: CCL) is engaged in manufacturing, distribution and marketing of beverages and is having a market capitalisation of A$7.97 Bn as on 10^th September 2019. Recently, the company with the help of a release dated 9^th September 2019 announced changes to organisational structure and senior accountabilities to further integrate beverage categories throughout each country of operation. It was also mentioned  that the changes take place as Amatil is completing a two-year transition phase for the Group and is aiming a return to mid-single digit earnings per share growth from 2020.

The company further stated that all beverage categories would now be managed in accordance with geographic responsibilities. The Australian based Alcohol and Coffee portfolios would join the Australian Beverages team under the leadership of Peter West.The Coffee portfolio in Indonesia will be part of the Indonesian business under the leadership of Kadir Gunduz. In addition, Alcohol and Coffee in New Zealand, Paradise Beverages in Fiji and Samoa, and the international alcohol sales team would be joining the New Zealand and Fiji businesses under the leadership of Chris Litchfield.

The following picture provides an idea of the performance of corporate & services:

Corporate & Services (Source: Company Reports)

Future Prospects:The company stated that the Australian Beverages is positioned for growth in 2020 with the completion of the additional investments in its Accelerated Australian Growth Plan and with container deposit schemes in New South Wales and Queensland substantially embedded by the end of 2019.

Stock Recommendation:  The return on equity stood at 10.6% in 1H FY19 as compared to the industry median of 5.5%. This implies that the company is providing feasible returns to its shareholders as compared to the broader industry. On the valuation front, the company’s EV/EBITDA stood at 11.1x on  TTM basis as compared to the industry average (Consumer Non-Cyclicals) of 9.2x. Considering the above-stated facts, we maintain a “Hold” rating on the stock at the current market price of A$11.120 per share, up 0.999% on 10^th September 2019.
 

Santos Limited

Decent Rise in Earnings:Santos Limited (ASX: STO) is involved in the exploration of gas and petroleum and is having a market capitalisation of A$15.37 Bn as on 10^th September 2019. The company recently updated the market with its half-year 2019 results wherein it reported record EBITDAX and underlying profit amounting to US$1,260 Mn and US$ 411 Mn, reflecting a rise of 43% and 89%, respectively. STO added that the consistent application of its disciplined operating model continues to deliver cost reductions and efficiencies, with normalised production costs coming down to US$7.27/boe, which reflects a fall of 5%. It was mentioned that the half-yearly results demonstrate the strength of its cash-generative operating model and the successful integration of the Quadrant acquisition.


Financial Summary (Source: Company Reports)

Future Guidance:For 2019, the company expects sales volume in the range of 90 to 97 mmboe and production in the ambit of 73 to 77 mmboe. The company’s strategy in the Cooper Basin is to deliver a low cost, cash flow positive business by building production, investing in new technology to lower development and exploration costs, and increasing utilisation of infrastructure including the Moomba plant.

Stock Recommendation:In 1H FY19, the company reported the current ratio of 1.61x as compared to the industry median of 1.34x, which implies that the company is in a decent position to address its short-term obligations as compared to the broader industry. As per ASX, the stock is trading at the P/E multiple of 11.770x. On the stock performance front, it delivered a return of 9.17% and 7.42% in the time period of one month and three months, respectively. Thus, in light of above-stated facts, we maintain a “Hold” rating on the stock at the current market price of A$7.680 per share, up 4.065% on 10^th September 2019.

Baby Bunting Group Limited

Increase in Pro forma Gross Profit:Baby Bunting Group Limited (ASX: BBN) is into the operation of Baby Bunting retail stores and its online store babybunting.com.au. It has a market capitalisation of A$380.59 Mn as on 10^th September 2019. The company recently announced that Gary Kent has made a change to his holdings by acquiring 10,000 fully paid ordinary shares at the consideration of $28,700 on 4^th September 2019. In another update, the company announced that it would conduct its 2019 Annual General Meeting on 8^th October 2019. When it comes to FY19 performance, the company reported a rise of 25.6% in Pro forma gross profit and the figure stood at $126.7 Mn. It added that the gross profit as a percentage of sales increased 190 basis points to 35.0%. This gross profit margin expansion was because of new product range improvements and improved importation arrangements with the supplier partners.


Gross Profit Margin (Source: Company Reports)

Future Aspects:For FY20, the company is expecting Pro forma EBITDA in the range of $34 Mn - $37 Mn, which represent growth of 25% to 36%. It is anticipating Pro forma NPAT to be in the ambit of $20 Mn to $22 Mn.

Stock Recommendation:The company reported return on equity (or RoE) of 13.1% in FY19, reflecting YoY growth of 3.7%. This implies that the company has provided better returns to its shareholders in FY 2019 as compared to FY 2018. On the valuation front, the company reported EV/ EBITDA of 13.3x as compared to the industry median (Consumer Cyclicals) of 7.2x. Also, the company’s Price to Cash Flow multiple stood at 15.1x as compared to the industry median of 9.2x. Therefore, it can be said that the company is having premium valuations as compared to the industry. With respect to the stock’s past performance, it produced returns of 37.44% and 40.65% in the time span of one month and three months, respectively. Hence, considering the aforesaid parameters coupled with stretched valuations and current trading levels, we give a "Hold" rating on the stock at the current market price of A$3.190 per share, up 5.98% on 10^th September 2019.  
 

 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.