Coles Group Limited

COL Details

Experienced Growth in Key Segments: Coles Group Limited (ASX: COL) is one of the leading retailers of products such as fresh food, groceries, household goods, liquor, fuel, and financial services. The company’s revenue decreased by 2% to $37,408 million but Group EBIT went up by 20.1% to $1,762 million due to improved trading performance in supermarkets, introduction of 1600 new product lines and sales growth in liquor brands (6.5% increase in supermarkets and 3.2% in liquor sales revenue). The company reported a strong balance sheet with investment grade credit metrics. As on 29^th Sept 20, the company reported a fully franked final dividend of 27.5 cents per share along with interim dividend of 30 cents per share, which was paid in March 2020. Its cash and cash equivalents increased to $992 million due to higher trading activity and receivables collections.

FY20 Financial Highlights (Source: Company Reports)

Business growing with Express segment to be pushed higher for growth: Sailing through the pandemic, the company has introduced over 1500 new products in stores, sales of more than $10 billion in Own brand sales, doubled its online sales capacity, and increased its staff by 5000 new members. It also strengthened financial position by reducing 30% debt from the last year.

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

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

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

Stock Recommendation: The company reports statutory profit after tax at $978 million and is adapting business to the COVID times. As per ASX, the stock of COL gave a return of 10.5% in the past six months and a positive return of 3.63% in the past one month. The stock is trading close to its 52-weeks’ high levels of $19.260 but retains potential for further growth. The stock of COL has a support level of ~$16.76 and a resistance level of ~$18.28. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and have arrived at a target upside of higher single-digit (in % terms). Considering the current trading levels, modest long-term outlook and valuation, we recommend a ‘Hold’ rating on the stock at the current market price of ~$17.590, down by 0.509% on 8 October 2020.

COL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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