Wesfarmers Limited

Company’s New Sustainability Website Launched: Wesfarmers Limited (ASX: WES) is involved in retailing of home improvement and outdoor living products and supply of building materials; retailing operations, chemical and fertilisers manufacturing; gas processing and distribution; retailing of office and technology products; industrial and safety product distribution, etc. Recently, the company launched a new sustainability website in order to provide enhanced information and frequent updates on areas of people, sourcing, community, environment, and governance.

In a previous update, the company’s director Jennifer Anne Westacott, acquired 1,295 shares at $38.61 per share, taking the final holdings to 5,802 direct shares and 986 indirect shares, effective from October 7, 2019. Another director Anthony John Howarth acquired 112 direct shares and 225 indirect shares, taking the final holdings to 6,253 direct shares and 14,044 indirect shares, effective from October 9, 2019. Director Simon William English acquired 22 shares, taking the final holdings to 1,104 direct shares, effective from October 9, 2019.

FY19 Key Highlights for the Period ended June 30, 2019:Reported net profit after tax (NPAT) for the period was recorded at $5,510 Mn, including post-tax significant items of $3,171 Mn.NPAT from continuing operations increased by 13.5% to $1,940 Mn. The Board of Directors declared a final dividend of $0.78 per share, with record date and payment date on September 2, 2019 and October 9, 2019, respectively.
 

FY19 Key Metrics (Source: Company Reports)

What to Expect:Given the diversity & resilience of the portfolio, the Group remains well placed for a range of economic conditions. Businesses within the portfolio are well-positioned to continue to deliver long-term success and value creation. The company is focusing on developing a deeper and broader digital offer, developing great talent & teams, and driving entrepreneurial initiatives. With the help of its unique capabilities & platforms and recently acquired investments, the company is expected to take advantage of growth opportunities within its existing businesses.

Stock Recommendation: WES’ share generated a positive YTD return of 30.36%. The company’s wholly-owned subsidiary, Wesfarmers Lithium Pty Ltd, recently acquired Kidman Resources (ASX: KDR), which would provide an opportunity to participate in the development of a large-scale, long-life and high-grade lithium hydroxide project in Western Australia in partnership with a global leader in the lithium industry.Its gross margin, EBITDA margin and net margin for FY19 stood at 38.3%, 11.3% and 6.9%, lower than the industry median of 57.3%, 29.6% and 12.9%, respectively. Its ROE for FY19 stood at 11.9%, lower than the industry median of 24.2%. However, its debt to equity multiple for FY19 stood at 0.30x, lower than the industry median of 0.67x. Currently, the stock is trading close to its 52-week high of $41.280. Hence, considering the aforesaid facts, we have a wait and watch stance on the stock at the current market price of $40.200, up 0.601% as on November 04, 2019.
 

Coles Group Limited

Sales Revenue for FY19 Increased By 3.1%:Coles Group Limited (ASX: COL) is involved in providing customers with everyday products, including fresh food, groceries, general merchandise, liquor, fuel, and financial services through its store network and online platforms. It demerged from Wesfarmers during FY19. The company recently announced its entry into the Australian Debt Capital Markets through Coles Group Treasury Pty Ltd, its wholly-owned subsidiary. The entry was marked by a multi-tranche $600 million transaction, comprising $300 million of seven-year Notes and $300 million of 10-year Notes.

Quarterly Results:During the 13 weeks from 1 July 2019 to 29 September 2019, the company reported total sales amounting to $8,695 million, up 1.8% on prior corresponding period sales of $8,543 million. Supermarkets sales surpassed the strong sales achieved in pcp, rising at a comparable rate of 0.1% on pcp. In addition, the quarter was marked by the first positive comparable fuel volume growth in the past four years.
 

FY19 Key Metrics (Source: Company Reports)

Strategic Initiatives:The company has made several efforts to become the most sustainable supermarket in Australia. Some strategic initiatives include an agreement with Metka EGN, a renewable power generation company, to secure three solar power plants, new product launches including Mum’s Sause, enabling direct sourcing of milk for dairy farmers from farmers in Victoria and Southern and Central NSW, and creating efficiency focused stores.

Stock Recommendation:COL’s share generated a positive YTD return of 29.36%. Its gross margin for FY19 stood at 23.9%, better than the FY18 result of 23.1%. Its net margin for FY20 stood at 2.8%, better than the industry median of 2.0%. Its ROE for FY19 stood at 32.6%, higher than the industry median of 13.3%, which implies that the company generated a better return for its shareholders than its peer group. Considering the diverse business profile, decent sales revenue and profitability margins, the company is expected to deliver sustainable value to its shareholders in the coming times. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $14.990, down 0.2% as on 04 November 2019.

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