Coles Group Limited
COL Details
Q1FY22 Sales Results: Coles Group Limited (ASX: COL) is a supermarket retailer providing groceries, general merchandise, liquor, fuel, and financial services through stores in Australia and e-commerce.
- Supermarkets Sales: In Q1FY22, supermarkets sales surged by 1.8% PcP or 11.9% of two-year headline sales growth as lockdown continued. The lockdowns bolstered a return to local shopping at the expense of visiting shopping centres, coupled with surged eCommerce demand. Store sales grew 48%, while two-year growth clocked 132%.
- Liquor Sales: It increased by 2.6% and clocked a 20.4% two-year headline sales growth due to elevated influx from COVID-19 and subsequent closure of on-premises venues in NSW, the ACR, and Victoria for most of the quarter.
- Express Sales: Curtailed passing crowd amid lockdown restrictions led to a decline in convenience store sales revenue of 10.1% PcP relative to an uptick of 2.2% in Q4FY21. The two-year headline sales slipped by 0.8%.
Q1FY22 Sales Results; Analysis by Kalkine Group
Key Risks and Challenges
The curtailed household consumption and increased savings ratio may deliver dampen COL’s revenue stream. Recent fuel volumes affect profitability; however, a reversal is expected in H2FY22.
Outlook
COL expects to rephase its capital program in FY23 amid construction delays due to COVID-19 containment measures. In FY22, capital expenditure is expected to range between $1.2 billion and $1.4 billion. On 2 February 2022, COL issued an advance notice declaring the H1FY22 results on 22 February 2022.
Valuation Methodology: EV/Sales 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 gave a negative return of ~11.111% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $15.275 - $18.940. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the subdued consumer spending and recent decline in fuel volumes, the company might trade at a slight discount to its peers’ EV/Sales multiple average. For valuation, few peers like Woolworths Group Ltd (ASX: WOW), Metcash Ltd (ASX: MTS), Endeavour Group Ltd (ASX: EDV) and others have been considered. Given the decent sales growth in Q1FY22, modest capex range, resurgence in current fuel volumes, current trading levels, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the current market price of $16.035, as of 11 February 2022, 12:40 PM (GMT+10), Sydney, Eastern Australia.
COL Daily Technical Chart, Data Source: REFINITIV
Donaco International Limited
DNA Details
Quarter Ended December 2021 (Q2FY22) Operational Update: Donaco International Limited (ASX: DNA) runs operating leisure and entertainment businesses in the APAC (Asia Pacific) region. It runs operations in Vietnam (Aristo International Hotel), Cambodia (Star Vegas Resort and Club), and corporate operations.
- Ongoing COVID-19 Restrictions: Star Vegas remained closed during the quarter, and Aristo remained open for a limited time amid COVID-19 restrictions. The continued conditions have significantly affected the revenues, resulting in $0.4 million relatives to December Quarter $6.0 million.
- High Impact on Bottom-Line: Group EBITDA stood negative at $1.2 million, stemming from inactive operations. However, the ability of DNA to clock long-term growth remains strong as the COVID-19 situation improves, following the ramp-up in vaccinations.
- Cash Position: DNA clocked a cash burn of $405,646/month during the period, falling in line with the targeted range. Sapa airport, holding a capacity of 1.5 million passengers per year, remains under construction near Aristo casino. The cash balance as of 31 December 2021 stood at $4.4 million.
FY21 Segment Results; Analysis by Kalkine Group
Key Risks and Challenges
Considering the recent COVID-19 turmoil, DNA has incurred high fixed costs of maintaining casino assets and associated corporate costs with a projected monthly cash burn of circa US$800,000 to US$900,000. The complete debt repayment with Mega Bank amid a recent cash burn on fixed costs may shred the cash position of DNA.
Outlook
DNA considers a robust long-term growth as the COVID-19 situation eases and vaccination rates are ramped up. The construction of Sapa airport shall further add to the customer base of Aristo casino. The company has curtailed its financial obligations with complete debt repayment to Mega Bank.
Stock Recommendation: The stock of DNA gave a negative return of ~23.729% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.033 - $0.075. The support and resistance levels for DNA stands at ~$0.036 and ~$0.048, respectively. On a TTM basis, the stock of DNA is trading at an EV/Sales multiple of 6.7x, higher than the industry (Hotels & Entertainment Services) median of 4.3x, thus seems overvalued. Considering the current trading levels, curtailed revenue streams, low profitability potential until COVID-19 restrictions lift completely, high cash burn for maintenance, key risks associated with the business, and overvaluation illustrated by TTM valuation, we give a “Sell” recommendation on the stock at the closing market price of $0.046, up by ~2.222%, as of 11 February 2022.
DNA 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 for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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.