Which one should you punt on - WES or COL?

Wesfarmers Limited

Growth in Sales Supported BANZ segment: In FY 2018, the Bunnings Australia and New Zealand or BANZ segment of Wesfarmers Limited (ASX: WES) generated the revenues amounting to $12.5 billion which reflects the growth of 8.9% on the YoY basis. The segment witnessed the growth in the sales across all the trading regions as well as in all the product categories. This segment has also been working towards the activities which are focused towards better experiences as the online transactions facility has been rolled out for the special orders. Moreover, in this segment, improvements in regard to the efficiency of the supply chain as well as data analytics capabilities were also witnessed.

BANZ Segment (Source: Company Reports)
What Helped Growth in Department Stores: The departmental stores revenues amounted to $8.8 billion in FY 2018 which reflects the YoY growth of 3.6%.The favourable momentum in the Kmart was supported by the robust growth in regard to the units sold as well as customer transactions. This momentum was seen because of the favourable response from the customers with respect to the advancements done.  The departmental stores recorded EBIT amounting to $660 million reflecting the rise of 21.5% YoY. In the Kmart, the strong momentum in the earnings was witnessed because of growth in the sales and improvements in the productivity as well as in the inventory management.

What Factors Would Support Department Stores and BANZ: Moving forward, the BANZ segment would be maintaining the focus towards compelling customer offer. The division would be witnessing favourable momentum in the upcoming periods as it is expected to encounter deployments towards range innovation as well as in customer service and value. Apart from expanding the customer services, BANZ segment would also be witnessing advancements in regard to the digital as well as data capabilities.

The management of Wesfarmers is optimistic about the outlook for departmental stores segment. With respect to the Kmart, the management stated that they would be aiming towards the lower price amidst competitive market and it would also be focusing towards the brand perception. Additionally, the focus would also be towards the deployments with respect to store network.

Stock Analysis from Technical Perspective:  Two technical indicators have been applied on the daily chart of Wesfarmers Limited and the default values have been considered. As per the observation, the MACD line has crossed the signal line and is moving downwards. Also, the stock price has crossed the EMA or exponential moving average and it is also moving in the downward direction. Therefore, we suggest the market players avoid the stock at the present levels. The current market price of the company stood at A$31.460 per share.
 

Coles Group Limited

Presence in Growing Markets, Robust Balance Sheet, Cash Flows to Support Coles: Coles Group Limited (ASX: COL) is well-positioned to witness strong growth moving forward mainly because of its presence in the markets which are having defensive characteristics. In these industries, the growth tends to remain stable irrespective of the movement in the economic cycles.  Moreover, the company also enjoys a strengthened position in regard to supermarket space.


Store numbers and sales density (Source: Company Reports)

The cash flow generation capabilities of Coles are mainly aided by the negative working capital, performance of the business as well as by capital expenditure approach.Additionally, the robust momentum in the cash generation would also support the company from the dividend pay-out ratio point of view. The company’s strengthened balance sheet would also be helpful for the company as a whole as it would be able to help from the dividends perspective. The robust balance sheet would also underpin the operational as well as strategic objectives of the company. The balance sheet of Coles would be helped by the businesses which are cash generative as well as profitable in the nature.
What Strategies Coles Plans to Follow: Coles Limited plans to make deployments towards the promotional activities as well as towards marketing moving forward which would positively impact the business fundamentals and would also attract attention from the market participants. Also, the company would deploy the capital towards the digital initiatives which would help it in meeting the expectations of the customers. Coles Limited would also be working towards improving the cost base and the company would also utilize technology towards the improvement in the supply chain as well as in store environment.

Even though the company is well-positioned to witness robust performance, it is also exposed to certain risks.Coles Limited might encounter unexpected expenses with respect to coming up as the standalone company. Additionally, the company might witness difficulties in gathering the consents of the third party which are under the contracts. Therefore, those contracts can also be terminated. As a result, the market players need to closely watch the stock before coming to any particular conclusion as the scenario looks mixed. At the moment, Coles last traded at the market price of $ 12.70.
 

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