Woolworths Ltd (ASX: WOW)
Setting to give a head-on competition to Amazon: With rising threat from Amazon, shares in Woolworths edged a bit up at the back of updates provided at the AGM with strategies highlighted for managing competition. The group’s chief executive Brad Banducci had flagged for a transition from its price-laden strategy to having better customer experience. The retailer has outlined its priorities for the next year to be consistent with those of 2017 and aims to give attention to customers’ experience, staff and the communities to deliver better value. The group is also benefiting from its digital strategy that is witnessing growth in mobile transactions and WooliesX gaining traction. Given the initiatives, Woolworths is expected to report profit growth this year with the investment of over $1 billion over the last two years for managing grocery prices and offering better services.The group has managed to report five consecutive quarters of comparable store sales growth despite overall weakness in the supermarkets margins.
The priorities to have customer-led culture, sustainable sales in food, renewal journey with 72 renewals and 85 light upgrades in Woolworths Supermarket, evolving Drinks business and becoming a lean retailer tracked well during FY17. September quarter reinforced the performance with Australian Food business delivering 4.9% comparable sales growth, Endeavour Drinks reporting 3.3% comparable sales growth and BIG W (2.9%) reporting positive comparable sales growth for the first time in a number of quarters. Meanwhile, Woolworths also offered substantial wage increases to its warehouse workers. The group expects good trading during the pre-Christmas period. We maintain a “Buy” on the stock at the current price of $26.20
Coca Cola Amatil Ltd (ASX: CCL)
Accelerating investments for revival: In a trading update, Coca Cola had highlighted that the group aims to re-invest about $40 million for driving growth in its Australian drinks business, which is under pressure owing to challenging environment. CCL further confirmed about reporting a flat underlying profit, and now aims to pre-pone the investing back of about $20 million of cost savings planned for 2019 and 2020, into the business. The group thus flagged the fast tracking of reinvestments to 2018, with an intention to deliver increases in marketing, execution, cold drink equipment, digital technology and price. CCL stock fell 4.8% on November 23, 2017 following the announcement of this update.
While the group had posted healthy earnings in Indonesia, Papua New Guinea, and Alcohol and Coffee, and expects the performance to continue; impact from the reinvestments plans and container deposit schemes are said to weigh to some extent. However, the group is still eying for mid-single digit earnings growth per share in medium term. Considering the price dip in last one decade while the group has the potential to recoup, we maintain a “Buy” on the stock at the current price of $7.59
iSentia Group Ltd (ASX: ISD)
Guidance reaffirmed: After falling about 42% in last one month (as at November 22, 2017), ISD stock surged 4.7% on November 23, 2017 with the release of its better than expected AGM update. The group’s FY17 revenue was below expectations while revenue from the Australia and NZ media intelligence business was slightly up year on year despite the impact from increased copyright costs. EBITDA had fallen by 19% while underlying NPATA was $24.7m, 24% below last year. However, the group has 73% of recurring revenue from the core business; and growth in Australia and boost from organic growth in Asia are expected to drive performance going forward. FY18 guidance has also been reaffirmed with revenue of $133-138m and EBITDA of $32-36m, while completion of King content exit is expected by end of calendar year 2017. We maintain a “Hold” on the stock at the current price of $ 1.11, till we see some more signals on anticipated positive outcome.
RCG Corporation Ltd (ASX: RCG)
Outstanding shareholder returns: RCG Corporation, the operator of a number of footwear businesses in the performance and active lifestyle sectors, witnessed its stock price rallying 7% on November 23, 2017 with the release of its AGM Presentation. RCG had delivered strong returns to shareholders over 11 years to June 2017, which are of the order of 807%. The group’s cashflow from operations in FY17 was up 3% while underlying NPAT surged 21%. Further, the online sales growth was outstanding at 79% while total digital sales grew 99% during FY2017. The group’s Chairman, Ivan Hammerschlag, is now retiring from the board to support the completion of the transformation of the group from an investment holding company to the regional leader in the retail and distribution. Even Michael Hirschowitz, the Group CFO and Finance Director, is stepping down while Matt Durbin takes the respective role. Year 2018 is said to be another year of growth with RCG expecting its dividend payout ratio to be between 75% and 80% of underlying earnings per share. This has been highlighted at the back of underlying group EBITDA for the first quarter of FY18 surging 6% on the same period in the prior year, backed by improving like for like retail sales trend since the end of September and better wholesale sales. RCG’s forward cover at an average rate of 0.74 of 100% of its expected FY18 USD purchases is also up over 0.70 in FY17.We maintain a “Hold” on the stock at the current price of $ 0.76
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Historical Returns (Source: Company Reports)
Investa Office Fund (ASX: IOF)
Upgraded guidance: Investa Office Fund edged a little low with release of its AGM presentation wherein it was highlighted that FY17 Net Property income of the group sits at $201.2m and distribution compound average growth rate (CAGR) since FY2013 sits at 3.3%. IOF’s funds from operations, the preferred measure of operational performance, were up 4.0% to $182.6m and the distribution to unitholders was up 3.1% to 20.2 cents per unit. With the $360m of valuation uplift, IOF’s net tangible assets per unit increased by 13.2%, from $4.23 to $4.79. It is worth noting that the group’s return on equity has been 18% while forward price to earnings level is quite low compared to peers. Given steady income profile, uplift in book value, and strong performing markets, the group upgraded the FY18 guidance to post funds from operations to be 30.3 cents per unit (from earlier stated 30 cents per unit). We put a “Buy” on the stock at the current price of $ 4.61
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