Stocks’ Details
 

Coles Group Limited

Decent Increase in Sales Revenue: Coles Group Limited (ASX: COL) provides customers with everyday products, including fresh food, groceries, general merchandise, liquor, fuel and financial services through its store network and online platforms. As on 9 June 2020, the market capitalization of the company stood at $21.02 billion. During the third quarter ended 29 March 2020, strong performance of the supermarkets, peak volumes of fuel and growth in sales of liquor resulted in an increase of 12.9% in sales revenue to $9.2 billion. In the same time span, COL introduced over 260 ‘Own Brand’ products and opened three new supermarkets and six renewals through tailored store format strategy.


Quarterly Growth in Sales (Source: Company Reports)

Outlook: During the quarter, the company saw an increased basket size which has been partially offset by a decline in transactions driven by social distancing measures. The changing habits of the customers, purchasing less convenience and impulse products and moving towards more cooking and baking from scratch have resulted in changing dynamics for the company. In the coming period, COL expects an elevated cost base and higher sales in Liquor.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of COL gave a return of 4.93% on the YTD basis and a return of 1.87% in the last one month. The company is reviewing its operational and strategic learnings and is actively working with its suppliers to improve its branded specials program. We have valued the stock using the price to cash flow multiple based illustrative relative valuation approach and have arrived at a target price with an upside of high single-digit (in percentage terms). Given the backdrop of decent growth in sales volumes, positive outlook, and current trading levels, we recommend a ‘Hold’ rating on the stock at the current market price of $16.07, up by 1.967% on 9 June 2020.

Metcash Limited

Successful Completion of A$300m Institutional Placement: Metcash Limited (ASX: MTS) is Australia’s leading wholesale distribution and marketing company. As on 9 June 2020, the market capitalization of the company stood at $2.81 billion. The company has successfully completed the fully underwritten institutional placement of $300 million by issuing 107.1 million new fully paid ordinary shares. These proceeds will add financial flexibility and will help the company in potential growth opportunities that align with its strategic direction.

Half Year Results: During 1H20, group sales went up by 0.5% to $7.2 billion, reflecting sales growth in the Food and Liquor pillars, partly offset by a decline in Hardware sales. In the same time span, underlying EBIT of the company stood at $149.7 million and EPS of the company was 10.5 cents. The company retained a strong balance sheet with no debt maturities until FY21.


Half Year Performance (Source: Company Reports)

What to Expect: The company is seeking to strengthen its balance sheet and enhance liquidity to reflect the current heightened levels of uncertainty. It is well-positioned to capitalize on potential opportunities that align with the group’s strategy.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of MTS gave a return of 7.84% on the YTD basis and a return of 12.7% in the last one month. MTS has recently announced that its AGM will be held on 26 August 2020. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation approach and have arrived at a target price with an upside of low double-digit (in percentage terms). Considering the decent returns in the past one month, current trading levels, decent financial performance, and positive outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $2.830, up by 2.909% on 9 June 2020.

Super Retail Group Limited

Track Record of Sales Growth: Super Retail Group Limited (ASX: SUL) is involved in the retailing of auto parts and accessories, tools and equipment, sporting equipment and apparel and boating, camping, outdoor equipment, fishing equipment and apparel, etc. As on 9 June 2020, the market capitalization of the company stood at $1.69 billion. The group has continued to deliver solid top-line growth and positive like for like sales growth in a challenging retail environment. During 1H20, group sales went up by 2.9% to $1,443.5 million and segment EBITDA stood at $159.8 million. In the same time span, customer growth outpaced the store growth and the number of active club members has increased to over 6.4 million.


Half Yearly Growth in Sales (Source: Company Reports)

Outlook: The company is focused on delivering higher gross margin and cost savings from business simplification to offset higher labour and rental costs. The company is not expecting a material impact on availability of product in the short term given current inventory levels. It is monitoring ongoing developments in China and will continue to undertake appropriate contingency planning. 

Impact of COVID-19: The company has maintained a positive sales momentum and has benefitted from a diversified portfolio of businesses. The online business of the company is operating normally with continued usage of home delivery and click and collect services.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of SUL gave a return of 8.37% in the past three months and a return of 38.13% in the last one month. The stock is also trading close to its 52-weeks’ high level of $10.54 but is likely to deliver additional returns. We have valued the stock using price to earnings multiple based illustrative relative valuation approach and have arrived at a target price offering an upside of high single digit (in percentage terms). Considering the current trading levels, decent financial performance and the resilience of the business amidst the global pandemic, we recommend a ‘Hold’ rating on the stock at the current market price of $8.55 on 9 June 2020.


Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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