This report is an updated version of the report published on 10 May 2022 at 3:40 PM GMT.
Coles Group Limited
Coles Group Limited (ASX: COL) is a retailer of fresh food, groceries, general merchandise, fuel, liquor, and financial services. The company operates through a network of retail stores in Australia besides the online platform.
Q3FY22 Update: In Q3FY22, COL achieved sales revenue of $9.08 billion as compared to $8.76 billion in Q3FY21, depicting a growth of 3.6%. Supermarkets and Liquor sales surged by 3.9% and 2.9%, respectively. While sales at its Express segment tumbled by 2.2% YoY. COL incurred $65 million towards COVID-19 related costs in contrast to $10 million incurred last year. It is on track to deliver Smarter Selling benefits in excess of $200 million in FY22.
The following picture gives a broader idea of the financial performance in 1HFY22:
Financial Summary (Source: Analysis by Kalkine Group)
Key Risks: The company’s business growth could be impacted by uncertainties in relation to the COVID-19 pandemic. In addition, the disruption in demand & supply could also pose an operational risk to the business.
Outlook: Looking forward, the company would continue to focus on providing trusted value for customers, including through exclusive to Cole’s products, in spite of increasing cost pressures. For FY22, the company expects capital expenditure in the range of $1.0 billion to $1.2 billion.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks
Stock Recommendation: The stock of COL is trading above its 52-week low-high average of $15.670 - $18.940, respectively. The stock has provided returns of ~+13.08% over the past three months. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peers, considering the lockdown impact on store closures and supply concerns. For this purpose of valuation, peers such as Woolworths Group Ltd (ASX: WOW), Metcash Ltd (ASX: MTS), Wesfarmers Ltd. (ASX: WES), and others have been considered. Considering the near-term risk of increasing virus spread and its impact on store operations, solid rally in the stock price in past months, current trading levels, the downside as indicated by the valuation, and key risks associated with the business, we advise investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $18.850 as on 10 May 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.
COL Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.