Consumer Discretionary Stocks News and Tips on the ASX.
Share To Sell Coca Cola Amatil Limited (CCL)
Coca-Cola Amatil (CCL) is an Australasian bottler for US-based The Coca Cola Company, with operations spanning Australia, New Zealand, Fiji, Indonesia and Papua New Guinea. CCL manufactures, sells and distributes Coca-Cola products, including carbonated soft drinks, mineral waters and other non-alcoholic beverages, plus packaged fruit via its SPC Ardmona business. The company also sells and distributes the premium spirits portfolio of Beam Global Spirits and Wines. Profit squeeze Earlier this year CCL admitted that it was facing increased competitive pressures from rival Pepsi’s new low-sugar drink, Pepsi Next, launched in 2012. This has magnified the pressure on the domestic beverage business, which was already contending with weak volume growth but now has to deal with aggressive competitor pricing activity. The disparity in price between Coca-Cola and Pepsi Next was as much as 50%, enough of a difference for consumers to switch their cola allegiance. A combination of weak volume growth and limited ability to raise prices is likely to squeeze CCL’s margins and harm profitability. Also, the SPC Ardmona business continues to be a drag on earnings. CCL is seeking government support for co-investment with SPC Ardmona, a tacit admission that it simply cannot compete with the cheaper importation of private label packaged fruit and vegetables. Outlook Today data showed confidence among Australians during December slid at the fastest pace in seven months. The Westpac Consumer Confidence Index returned a reading of 105, almost 5% weaker than the 110.3 recorded in November. Confidence took a dive this month as consumers became more pessimistic about the outlook for the jobs market and the broader economy. CCL has cited consumer caution as a key factor behind the slowdown of its domestic business and today’s Westpac survey is likely to make them even more nervous about the outlook. In November the company guided for a 5% - 7% fall in FY13 underlying EBIT (the financial year ending this month). With the Australian beverage business comprising around 70% of group revenue, the recent economic data trends suggests the weakness in CCL’s business is likely to persist into FY14.
Buy Share – Kathmandu Holdings (KMD)
Kathmandu Holdings (KMD) listed as a buy share on the 3rd of October is a New-Zealand-based designer, marketer and retailer of clothing and equipment for the travel and adventure market. It primarily retails its Kathmandu-branded products, which range from winter clothing through to recreational goods such as sleeping bags and camping accessories. 1H13 Results KMD reported a 26.6% jump in FY13 net profit to NZ$44.2 million. A final dividend of 9 cents was declared, bringing the full year dividend to 12 cents (20% up on FY12). The result was delivered on the back of a 10.6% lift in sales to $36.9 million. In New Zealand, sales and EBITDA were up a solid 8.6% and 10.7%, respectively. In Australia, sales grew 19.5%, which was impressive given the difficult retail environment. Although the Australian sales growth was mostly attributable to the group’s aggressive store rollout strategy, same store sales were still up a healthy 6.7% on-year. The group also demonstrated good cost control, with operating expenses as a percentage of sales falling from 44.1% in FY12 to 43.8% in FY13. KMD has been able to comfortably outperform the broader retail industry due in large part to the strength of its brand, which is synonymous with winter and outdoor apparel. The group is leveraging the strength of its brand through a digital strategy that delivered a 55% surge in FY13 online sales. Online sales now make 4% of overall sales and are growing rapidly. Outlook KMD was vague about its outlook, saying only that it expected another solid result in FY14 amid an uncertain economic environment. We are more optimistic than KMD about the outlook. The group delivered a standout result in FY13, which was arguably a tough year overall for retailers. Whilst the operating environment is likely to remain challenging, the record low interest environment and rising consumer confidence should provide greater support for the Aussie retail sector in FY14. The group is not resting on its laurels, targeting another 15 new store openings in FY14, enhancing its online offering and investing in new product categories. On top of a continued focus on cost control, we believe KMD is on track for another strong result in FY14. For all of our latest share market tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Share Market News JB Hi-Fi (JBH)
JB Hi-Fi (JBH) is a chain of electrical stores, selling leading brands of hi-fi, speakers, televisions, DVDs, cameras, car sound, home theatre, computers, white goods, portable audio and a variety of music, games and movies. The company has been able to grow its sales over the last 5 years in what can only be described as one of the most difficult trading conditions for retailers in over 20 years. JBH’s strategies for growth are simple: increase the number of stores, increase sales, and through that, increase profit. JBH’s expansion is not only in the Australian market, but also in New Zealand. Since entering the New Zealand market in early 2007, it has opened 13 stores. Key Points: FY13 Results, Net profit of $116.4 million, up 11.2% on year, ahead of market consensus ($115.5 million) and its own guidance ($112-$116 million). Sales came in at $3.31 billion, up 6.3% on the prior year’s results. Comparables store sales did fall 0.5% over the year, but rose 3.5% in second half which is an encouraging sign. The groups gross margin expanded by 43 basis points to 21.5% with Online sales growth of 29.8% and now represents 2% of overall sales. JBH’s balance sheet is in a healthy position, with the group’s gearing falling from 59.7% to 23.4% after its repaid $26.8 in borrowings. The company payed 72 cents of dividend for the year, up 10.8% on the prior corresponding period. Growth Opportunities, 14 new stores to be opened in FY14 bringing total to 189 stores, Digital sales through online brand, NOW Music, NOW eBook Now Video. Continued roll out its HOME appliance brand, Online sales growth from soon to be launched HOME appliance website and new JB Hi-Fi websites. Outlook JBH FY13 results were helped by the opening of new stores, but impresive nonetheless. The group has guided for sales growth of between 6-8% in FY14, which we think is more than achievable given the aforementioned growth opportunities. Overall we think the JBH growth story has more to play out and this should continue to lead to share price appreciation. JB Hi-Fi was listed as a buy share for our members on August 23rd. For all of our latest share tips and share market news sign up for FREE 7 Day Trial and gain full access our research files.
Kathmandu Holdings (KMD) Share To Buy
Kathmandu Holdings (KMD) is a New-Zealand-based designer, marketer and retailer of clothing and equipment for the travel and adventure market. It primarily retails its Kathmandu-branded products, which range from winter clothing through to recreational goods such as sleeping bags and camping accessories. Sales momentum KMD reported a healthy 13.1% increase in 1H13 revenue to $165.9 million. Net profit surged 71.7% to $10.3 million. The group is generating strong sales momentum, with constant currency revenue having risen at a 15.8% compound annual pace from 1H10 to 1H13. Australia, which is KMD’s largest segment, recorded 1H13 sales growth of 21.5%. Even on a same store basis, sales were up 9.6% in Australia. No matter how we slice it, this an encouraging result when considering some its closest competitors are struggling to report even half that growth in the tough economic environment. This demonstrates to us the success of KMD’s strategy, and we expect it to drive sales over the near-to-medium term. Indeed, it appears this momentum has carried into 2H13 with total sales for the 13 weeks leading April 28 rising 12.5% on the prior corresponding period. Same store sales were up a similarly healthy 4.1%. Positive outlook KMD was cautious about providing FY13 guidance, noting only that it expected a strong performance for the full year. This was despite its admission that it was facing increased competition and challenging economic conditions. The group is still firmly in a growth phase, recently upgrading its new store rollout target from 150 stores to 170 stores across Australia and New Zealand at a rate of 15 new stores per annum. Moreover, online sales, whilst still less than 5% of overall sales, are growing at a rapid clip. 1H13 online sales were up 50% on-year, and are likely to continue growing strongly as KMD optimises its smart phone application and adds international shipping capability to its platform. Impressively, for a company growing its revenue at a 15% rate, it is trading on a one-year forward P/E of just 11.9x. That represents a circa 20% discount to the median of its closest peers, which we don’t believe is justified when considering the growth potential from its store rollout strategy and re-branding efforts. Kathmandu was listed as a buy share for our members on August 5th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
M2 Telecommunications Group (MTU)
M2 Telecommunications Group Ltd (MTU) is Australia's largest network independent telecommunications provider. The group offer a range of services specifically tailored towards small-to-medium businesses in Australia and New Zealand. MTU encompasses the following brands: >> Commander - offers a wide range of bundled telecommunications services with telecommunications equipment through a national exclusive dealer network. >> iPrimus – offers broadband, phone, mobile and data services to consumers. >> M2 Wholesale - is the exclusively endorsed wholesale aggregator of Optus third generation (3G) mobile services, and wholesale supplier of choice for fixed-line and data services. >> Black + White - is a retail and wholesale provider of the full suite of telecommunications services to small-to-medium sized businesses and reseller telcos in New Zealand 1H13 Results MTU’s 1H13 results were impressive with the company on track to deliver its 8th straight year of earnings growth. The group’s 1H13 results showed spectacular growth when compared to 1H12, with the period benefiting from the acquisition of iPrimus. A few of the key highlights of the results were: >> Revenue was up 65%, to $305.2 million >> EBITDA grew by a staggering 99%, to $55.1 million >> Underlying NPAT rose by 67%, to $31.7 million >> Underlying EPS increased by 32%, to 20.2 cents per share The group was also able to expand its EBITDA margin from 14.9% in 1H12 to 18% in the 1H13. We were particularly impressed by MTU’s ability to expand its margins, as it shows management’s competency and ability to successfully integrate and deliver on synergies benefits. Acquisition based growth MTU first-half growth was driven by the acquisition of iPrimus, with the acquisition still expected to show benefits in the second half. As well as iPrimus the company in March announced the acquisition of Dodo Australia. Dodo is a retail focused of essential services to residential customers that include: >> Broadband >> Mobile >> Home phones >> Wireless broadband >> Power and Gas >> Car, home building and contents insurance The group has a customer base of over 400,000 clients, with 660,000 active services. We think the acquisition is good move as Dodo’s business is a profitable and organically growing business, which is highly complementary to M2’s existing consumer division. Outlook As mentioned, MTU is on track to record its 8th straight year of annual EPS growth and we think the recent acquisitions will see this record continue for many years to come. The group’s has a solid record of successfully integrating new businesses to its current infrastructure. This is evident in the recent results in which iPrimus synergy benefits helped contribute to expanding margins. This gives us high hopes that the Dodo acquisition will be a success, with current estimates expecting the acquisition to result in underlying FY14 EPS accretion of approximately 20%. Overall, we see expect MTU’s FY13 results (due to be released on 28 August) to show solid growth and with think the share price will rise in anticipation of this outcome. M2 Telecommunications was listed as a buy share for our members on August 2nd. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Cabcharge Australia Limited (CAB)
Cabcharge Ltd (CAB) is a diversified Australian technology, financial services, taxi payments and a land transport company. Its business is predominantly a taxi charge account system allowing customers to pay via credit card for their tax trips for a servicing fee. CAB also has two affiliate businesses; UK-based account, booking and dispatch services provider, Cityfleet (49%-owned), and Australian-based commuter bus operator, ComfortDelGro (49%-owned). Victoria tax reforms In a major blow for the company, Victoria’s government announced in late May that it intended to limit the industry credit card servicing fee from 10% to 5%. Victoria contributes around $22 million of CAB’s overall taxi service fee income, which came in at $89.6 million in FY12. Taxi service fee income represents around half of total revenue. A 5% fee effectively reduces Victoria’s contribution by around $11 million, or 12% of overall taxi service fee income. On its own, this proposal will make a noticeable dent to CAB’s annual revenue stream, but not enough to cripple the company. A bigger issue is whether other state governments choose to follow Victoria in any implementation of these changes. Already, NSW and Queensland have signalled they may too consider a 5% cap on servicing fees. Whether Victoria ultimately implements the changes recommended by last year’s Alan Fels tax inquiry, and whether Queensland and NSW decide to follow Victoria will ultimately be negative for CAB. The policy uncertainty alone is likely to cloud the company’s outlook, and if the servicing fee change is adopted by these three states, then we foresee a significant hit to its annual taxi service fee revenue. Recent results CAB’s recent results have not been particularly impressive. 1H13 underlying profit was down 3.7% amid weak Cabcharge Card turnover, which was blamed on subdued economic conditions. Moreover, Cityfleet net profit slumped 49% amid difficult trading conditions in the UK, detracting from the group’s overall earnings. CAB’s financial metrics highlight some worrying trends. EBIT margin has shrunk from 48.6% in 2H11 to 46% in 1H13. Revenue growth has also stagnated during this period from 5.5% to just 1%. This has reflected a decline in payment system turnover growth from 3.5% in 1H11 to -2.2% in 1H13. The fact margins have shrunk amid deteriorating revenue growth further suggests to us CAB is not doing a good enough job in cost control. Outlook The uncertainty created by the proposed Victorian taxi reforms is an unwelcome problem facing CAB’s management. With NSW and Queensland indicating an interest in implementing their own reforms to credit card servicing fees, it appears a major driver of CAB’s revenue is coming under threat. The reforms add to concerns of a weak operating environment in the UK (hurting the Cityfleet business) and will likely lead to further decline in the company’s margins. We think these concerns are enough to see CAB’s share price suffer over the medium term. Cabcharge was listed as a sell share for our members on August 8th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Treasury Trashed – Treasury Wines Sell Share
Treasury Wine Estate (TWE) is a wine business, with operations spanning all the way from the vineyard to international marketing and distribution of wine. The company is one of the world’s largest listed wine makers following its demerger from Foster’s Group in May 2011. TWE has four main geographical divisions; Australia and New Zealand (ANZ), the Americas, Europe/Middle East/Africa (EMEA), and Asia. Profit downgrade The Americas are the largest contributor of overall revenue (44%), followed by Australia at 35%, then EMEA around 15%, with the rest (~6%) being from Asia. On Monday, TWE announced a $160 million write-down of its US business after ambitious sales forecasts saw it supply too much wine to the U.S. In response, the company was forced to destroy old inventory and offer big discounts to clear a glut of wine from the current stock. As a result of the write-down, FY13 operating earnings were likely to be around $216 million, barely higher than FY12’s $210.2 million and weaker than the mid-single digit growth TWE forecast during February’s 1H13 results presentation. The downgrade raises serious doubts about management’s outlook for the US business, which now appears to have been overly optimistic. Valuation & outlook Whilst there has been general improvement in the US economy, demand for TWE’s wines has not kept pace with the rate of shipments and the problems have come home to roost. Even after its profit downgrade, TWE is trading on a one-year forward P/E of 21x, which we think is still too high. The write-down has affected FY13 earnings, but TWE also warned that earnings in the current financial year were expected to fall by up to $30 million due to anticipated lower shipments to the US. Can TWE make up the slack from its other divisions, like Australia? We don’t believe so. Australia still faces a supply glut, which is likely to keep selling prices at home low, pressuring profit margins. Also, TWE has set aside $40 million in discounts and rebates to its US distributors to help clear out the excess stock. Given that it’s the cheaper US labels that are in excess supply, TWE will find it hard pressed to raise prices in the future without suffering a consumer backlash. Unfortunately for the company, higher prices may be needed to recover lost profit margin. Amid uncertainty about how the current US problems will affect future profitability, we think TWE is still overvalued even after its price drop and fear more declines may be in store for its share price. Treasury Estate was listed as a sell share for our members on July 18th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Share To Buy Westfield Group WDC
Westfield Group (WDC) is the world’s largest listed retail property group was listed as a share to buy in our traders report on Tuesday April 16th. The group has a global portfolio, comprising 105 shopping centres across five countries. It also manages all aspects of shopping centre development, from design and construction through to management and marketing. FY12 results WDC reported an 18.3% rise in FY12 net profit to $1.7 billion. Funds from operations – which strip out asset revaluations – climbed 6% to $1.5 billion. Net property income rose 7%, with the UK contributing a large part of the growth as the London Olympics led to an increase in shopping centre traffic. There was positive 2H momentum in the US, with net operating income growth exceeding previous guidance as specialty sales rose due to a record number of shops opened. Another highlight was the high occupancy rates. Global occupancy was 97.8%, up 30 basis points on-year with most of the growth coming from the US portfolio. WDC also extended its share buyback for another 12 months, a move likely to provide a good degree of support for its share price. Shedding non-core assets In the latest example of the group optimizing its asset structure, WDC sold its 49.9% stake in six Westfield shopping centres in Florida, USA, to O’Connor Capital Partners. The sale is expected to bring in net proceeds of US$700 million and will result in a joint venture between the two firms, with Westfield retaining its role as property, leasing, and development manager. By shedding non-core assets, WDC is freeing up capital to help fund its $12 billion development pipeline and engage in capital return initiatives such as the expansion of its buyback program. Outlook Last week WDC commenced a plan to redevelop Westfield Garden City at Mt Gravatt, Queensland. The $400 million project will be jointly funded by WDC and Westfield Retail Trust (WDC). The redevelopment will include a full line Myer department store, a new Target store and over 100 new specialty retailers. The Mt Gravatt project is expected to yield 6.75% - 7.25%, in line with the yield generated by WDC’s other development projects in the US and Australia. WDC commenced $1.4 billion in new projects during 2012, and forecast another $1.25 - $1.5 billion in new projects during 2013. The overall development pipeline now stands at $12 billion. In our view, the group’s selling of non-core assets and investment in high yielding projects will increase the return from its assets and ultimately translate into further share price appreciation. For more share tips on not only the Westfield Group, get our latest asx share market trading ideas by signing up for FREE 7 Day Trial and access all our research files.
Myer Holdings Limited (MYR) – Share To Buy
Myer Holdings (MYR) is one of Australia’s largest department store groups, targeting a wide spectrum of consumers. The company has a national network of stores, retailing designer, national, and international fashion and apparel for men, women and children. MYR focuses on its retail presence and execution, and also operates a consumer loyalty program. Improving consumer environment MYR has been operating in an extraordinarily tough consumer environment in recent years, but conditions look to be easing. In the first four months of 2013, the Westpac Consumer Confidence Index has risen to its highest level since December 2010. Since last October, consumer confidence has risen 11.5%. It appears the RBA’s 2012 interest rate cuts are beginning to have a noticeable impact on confidence, leading to improved operating conditions for retailers like MYR. 1H13 results Last month, MYR mentioned that its 1H13 net profit increased by 0.7% from the prior corresponding period to $87.9 million. An interim dividend of 10 cents was declared. CEO, Mr. Bernie Brookes, said that, “we are pleased that the positive sales trend continued during the half, with the second quarter representing our third consecutive quarter of positive comparative store sales growth. On a comparable store sales basis, 1H13 sales increased by 1.4% on the prior corresponding period to $1.7 billion. The result was attributed to the good performance of its menswear, cosmetics, womenswear, fashion accessories, and childswear divisions. Despite a challenging environment, MYR managed to grow same store sales by focusing on things it can control like improved customer service, new stores and refurbishments, and a better online offering. The group’s investment in its own brands also appears to be paying off, with the positive customer reception helping to drive a 23 basis point increase in gross margin from 1H12. On a one year forward P/E basis MYR is trading on a multiple of just 13.1x, representing a 13.5% discount to the median of its closest peers. Outlook MYR has provided three straight quarters of comparable store growth and we expect this trend to continue. Sentiment towards retailing stocks is improving, with consumer confidence rising to multi-year highs thanks in part to the RBA’s rate cutting cycle. MYR responded to the challenging retail environment by investing in its own brands. The 1H13 results showed solid demand for MYR’s brands, and we think this will translate into continued margin expansion. The stock is still trading at relatively inexpensive multiples, offering good value around current prices. Myer was issued as a share to buy to our members on April 9th, if you would like further information you can sign up for FREE share tips and access all our research files on not only MYR but all our current trading ideas. Simply click here and starting trading today, free for 7 days.
Share Tip – JB Hi-Fi Flying High (JBH)
JB Hi-Fi (JBH) is a chain of electrical stores, selling leading brands of hi-fi, speakers, televisions, DVDs, cameras, car sound, home theatre, computers, white goods, portable audio and a variety of music, games and movies. The company has been able to grow its sales over the last 5 years in what can only be described as one of the most difficult trading conditions for retailers in over 20 years. JBH’s strategies for growth are simple: increase the number of stores, increase sales, and through that, increase profit. JBH’s expansion is not only in the Australian market, but also in New Zealand. Since entering the New Zealand market in early 2007, it has opened 14 stores. 1H13 Results JBH’s 1H13 results impressed on several fronts. Sales for the six months to December 31 were $1.81 billion, up 3.1% on the prior corresponding half. Net profit was $82.1 million, up 3% on the 1H12 result. The group also declared an interim dividend of 50 cents per share, fully franked. This equates to a solid yield of around 6.5% at current prices. Perhaps the most surprising number released by JBH was its gross margin, which rose by 28 basis points. This number is made even more impressive when it is compared to competitor, Harvey Norman, whose gross margin dropped 260 basis points over the same period. Consumer environment The operating environment for the retail sectors has been subdued over the last few years, but this appears to be abating. The latest release of the Westpac Consumer Sentiment survey, showed the consumer sentiment index rising 2% to 110.5 in February. It is the highest level the index has reached since the end of 2010. A reading above 100 indicates that more consumers are optimistic about the economy rather than pessimistic, with the index having been in the positive territory for the past five months. There are likely a few reasons for the uplift, with the RBA cutting the cash rate to 1.75% between November 2011 and December 2012, probably the key reason. Looking ahead JBH’s 1H13 results showed sales growth and more importantly, expanding margins. While these expanding margins initially helped the company’s profitability, they will be more significant when industry wide sales growth return to trend. Retail sales figures in January already have hinted of such a return, with an increase of 0.9% from December. Confirming these retail numbers, JBH noted that its sales climbed 11.7% during January (4.2% like-for-like sales growth). With the consumer sentiment reading at all-time highs and sales growth starting the year off with such a strong number, we see a solid result ahead for JBH, which should translate to further share price appreciation. JB Hi-Fi was issued as a share to buy to our members on March 27th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only JBH but all our current trading ideas. Simply click here and starting trading today, free for 7 days.
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Nov 2014 - Nov 2016
Our short-term focused Trading Report returned 30.03%, outperforming the ASX/200 Accumulation Index by 6.45%*
DISCLAIMER: *Performance is derived from recommendations provided by Australian Stock Report’s Trading Report, opened on or after date of acquisition in Nov 2014 *Return figures are gross returns and do not take into account fees or brokerage costs. *Returns are calculated based on a $50,000 hypothetical portfolio, risking 2% of the overall portfolio balance ($1,000) as a starting point for each trade. *Due to slippage and gapping, losses can sometimes exceed $1,000 on an individual trade. *Opening and closing prices for trades (and therefore the prices used for determining aggregate profit/loss) will be those published on the Australian Stock Report website and will be determined by the price at which they could realistically be executed in the market at the time the recommendation is published. *ASX 200 Accumulation Index Return is calculated based upon the price of the index at the start of the session on the day the first ASX 200 trade was placed, i.e. 24.11.2015
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