Super Cheap Auto (SUL) is Australasia’s leading retailer of automotive and boating, camping and fishing products.

The company boasts a number of brands, including Super Cheap Auto, BCF Boating/Camping/Fishing, GoldCross Cycles, Ray’s Outdoors and Rebel Sport.

1H13 Results

The group’s recent 1H13 results were a solid improvement on the 1H12 results.

Revenue rose 37% to $1.04 billion, helped by strong Like-for-like (LFL) sales. LFL sales for SUL’s Supercheap Auto division were up 5.2% while its Leisure and Sports divisions sales rose by 2.8% and 8.3% respectively.

The group’s underlying earnings EBIT and NPAT increased 35% and 30% respectively compared to the prior corresponding half. On the back of the strong result, the group was able to increase its interim dividend by 31% to 17 cents per share, fully franked.

Operating metrics

SUL has a history of delivering healthy returns, with its return on equity (ROE) averaging 19.2% since 2008. The group has also grown its half-year revenue by an average rate of 18% over the last five halves.

Moreover, while many retailers have been suffering margin contraction, SUL’s EBIDA margin has risen over 140 basis points. These are extremely impressive results given the tough retail-operating environment over the last few years.

Looking ahead

Going forward, we expect SUL to deliver more robust revenue and earnings growth. The company has shown solid same stores sales growth, with an ability to control costs through supply chain initiatives.

We believe SUL’s good supply chain management will be essential, especially given the company long-term aim to open another 40 Super Cheap Auto stores, 44 more stores in Leisure and 59 more stores in Sports.

Overall, we see continued growth for SUL’s business, which should translate to further gains for SUL’s share price.

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Woolworths Limited (WOW) operates supermarkets, specialty and discount department stores, a liquor business and electronics stores throughout Australia.

The company manufactures processed foods, exports and wholesales food and offers petrol retailing. WOW’s hotel operations include pubs, food, accommodation, and gaming.

1Q13 Sales

WOW’s 1Q13 sales continued to show an improving sales trend. Sales from continuing operations were $14.8 billion for the quarter, up 4.7% on the prior corresponding period.

The supermarket division (including liquor), which accounts for ~88% of sales, reported a 3.4% rise in sales to $12.99 billion.

Areas growth

While a majority of WOW’s 1Q13 sales were good without being great, there were a few standout divisions. Big W reported like-for-like (LFL) sales growth of 3.4%, showing the success of the group’s recent marketing campaigns.

The group’s newly entered Masters Home Improvement segment showed spectacular growth, with 62.2% increase in sales. Most of this was driven from seven new store openings in one quarter and greater brand recognition.

The company plans to open 150 stores over the next five years, with at least 30 stores to be opened by the end of FY13. We believe that exposure to this sector can only be beneficial to WOW’s earnings in the long run.

Looking forward

A real solid sales trend has begun to emerge for WOW and 1Q13 sales may continue this positive trend. Another fact we like about the group is that such a large proportion of its sales come from the more reliable supermarket division, as this provides more consistent earnings.

WOW’s ability to generate cash will become increasingly important to fund the Masters Home Improvement expansion and we believe this will be beneficial to WOW going forward.

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Wotif.com Holdings (WTF) is an online travel services business, which represents 23,500 in more than 67 counties. The group’s main website is wotif.com, but it also operates under lastminute.com.au, travel.com.au, Asia Web Direct, LateStays.com, GoDo.com.au and Arnold Travel Technology.

WTF, through the aforementioned websites, offers a variety of services that include flights, insurance, car rental, and travel accommodation and packages across hotels, motels, serviced apartments, resorts, guesthouses and bed & breakfasts. The service allows customers to book rooms at a heavy discount and at the same time help hotels better manage their vacancies.

FY12 impress, while 1H13 disappoints

At first glance WTF’s FY12 results looked good, however when placed in the context of the weak domestic travel market, the results were fantastic. Revenue over the year was up 5%, to $145.3 million. Net profit was $58 million, up 13.8% on the FY11 result.

The results were driven by an increase in accommodation rates and sales, and also some significant growth in WTF’s flight booking service. WTF’s operating profit margin also increased from 56% to 59%, with the group demonstrating good cost control whilst expanding revenue.

On a more disappointing side, WTF said the first quarter of fiscal year 2013 continues to reflect economic weakness. The 1Q13 performance was in line with the 1Q12 and likely to continue for the remainder of 2012.

The group is essentially saying that it expects little revenue or margin growth for the 1H13 as the operations continue to endure a period of prolonged weakness.

The good news

The AGM was not all bad news with WTF announcing its plans to lift its booking commission rate by 1% from 1 January 2013. This will be followed by a further lift of the same amount on 1 January 2014.

The group had $1.16 billion worth of transactions in FY12, and a 1% increase in commissions on this figure would increase of $11.6 million in revenue.

If the group’s strong operating profit of 59% stays consistent, the increased commissions would equate to a pre-tax profit increase of $6.8 million.

Even with flat transaction growth over the next two years, the two sets of increased commissions suggest the company still has the ability to grow earnings.

Outlook

WTF’s FY12 results showed a company that is able to grow earnings even in a tough environment. We think that the increase in commissions starting 1 January 2013 will negate the effect of continued weakness within the domestic accommodation market.

We would also expect some of the increased revenue to be redirected towards expanding into the less mature flight and holiday letting businesses, which has already started to show promising signs. Given the aforementioned factors we feel WTF has plenty of scope to continue growing its earnings, providing further support for the share price.

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Wotif.com Holdings (WTF) provides online travel services via itswww.wotif.com website. The website offers last-minute travel accommodation, across hotels, motels, serviced apartments, resorts, guesthouses and bed & breakfasts.

While the company is the dominant hotel booing site in Australia, it is attracting more competition and the historically strong rates of growth are becoming increasingly hard to replicate.

The company’s recent results saw higher revenue and profits but still disappointed the market, with the high Aussie dollar constraining overseas booking of Australian hotel rooms

FY12 results

At first glance, WTF’s FY12 results weren’t that bad. Net profit rose 14% to $58 million, with total revenue up 5% on the back of accommodation and flight booking growth.

EBIT margin increased from 56% to 59%, with the group demonstrating good cost control in a period of revenue growth.

However the operating environment has weakened noticeably in the opening months of FY13, reducing the odds of a repeat performance this financial year.

CEO resigns

Last month, WTF CEO Robbie Cooke announced he would leave the group at the end of the year to take up the top role at Tatts Group (TTS). Cooke’s intention to depart was met with a negative reaction, as his seven year tenure coincided with a period of strong growth for the group.

Given there was no immediate successor, his departure introduces leadership uncertainty just as the company is grappling with a slowing domestic economy.

Squeezed by competition

The biggest long-term threat to WTF is the entrance of new competition in the online accommodation market. The market itself has very low barriers to entry, meaning it wouldn’t be that hard for WTF’s competitors to muscle into its territory.

Indeed this seems to be happening already with US-based Expedia and Priceline expanding their presence in Australia through the development of smart phone apps.

Increased competitive pressures are also a likely reason why the value of room nights sold through WTF has stagnated around $7 million a year from FY10.

Outlook

The near-term outlook for WTF is uncertain at best. Its domestic-oriented business faces a period of weak revenue growth as TTV declines amid cutbacks in consumer discretionary spending.

Moreover, the Aussie dollar is still trading at lofty enough levels to encourage consumers to travel internationally rather than domestically. WTF admitted as much in its FY12 results, saying the high dollar was “situation normal”.

Flight bookings make up less than 10% of overall revenue, so whilst there may be some benefit to WTF from increased offshore travel, it won’t be enough to mitigate the impact to domestic accommodation revenue.

Moreover, greater competition from companies like Expedia and Priceline is expected to eat into WTF’s domestic market share, potentially resulting in slower revenue growth and margin pressure over the longer-term.

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Metcash Limited (MTS) is a leading marketing and distribution company operating in the food and other fast moving consumer goods categories.

MTS operates via three business units: IGA Distribution (retail), Campbells Cash & Carry (wholesale) and Australian Liquor Marketers (ALM; liquor wholesale).

Metcash announced a $325 million capital raising, the new shares will be issued at $3.46, which is a 7.5% discount to its previous closing price.

The funds will be used to pursue growth opportunities through acquisitions, as well as provide financial flexibility to take advantage of any future opportunities that may appear.

The group also released its FY earnings, showing a net profit of 90 million Australian dollars, a 63% fall on the prior year’s results.

The company said in a statement that results had been hit by one-off restructuring and impairment costs.

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Wesfarmers Ltd. owns retail chains, operates mines, writes insurance, manufactures and distributes industrial products, manufactures fertilizers and chemicals, and distributes liquefied petroleum gas and medical and industrial gases.

Blue chip stock Wesfarmers said today at a strategy briefing that third-quarter sales at its Bunnings home improvement stores were up 4.7% on year.

The company also said that comparable store growth for Bunnings climbed 2.6% over the same period.

Wesfarmers’ Officeworks chain sales in the third quarter were up 2.5%.

Management said market conditions remained challenging, with competitive pressure on sales and margins and concerns about consumer sentiment continuing.

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GrainCorp Limited provides grain industry related services in Australia.  The Group provides grain and bulk commodities handling and storage for growers, end users and marketing organizations.

The Group also operates grain pools, provides transportation services for bulk commodities along with farming products and flour milling and mixing services.

Consumer staple stock GrainCorp reported a 1H FY12 net profit $133.7 million, a 52.5% surge on the previous corresponding period.

The group said that the result was largely driven by higher earnings from storage, handling and ports activities.

GrainCorp lifted its net profit guidance to a range $185 million to $205 million from 165 million to $185 million previously.

CEO Alison Watkins said “the strong forward program of export bookings at GrainCorp’s ports, coupled with improving malt sales and expected earnings, gives the company sufficient confidence to upgrade the earnings guidance provided to the market in February.”

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Metcash Limited (MTS) is a marketing and distribution company operating in the food and other consumer goods sectors.

MTS is divided into four business units: IGA Distribution, Campbell’s Wholesale, Australian Liquor Marketers and Mitre 10. All of the business units are full owned by MTS with the exception of Mitre 10, which is 50.1% owned.

Last year, MTS completed a takeover of New South Wales supermarket chain, Franklins. The deal was finalised after the Full Court dismissed the ACCC’s appeal to block the merger on the 30th of November.

Margin squeeze

The domestic supermarket industry is dominated by Woolworths and Wesfarmers-owned Coles, with MTS coming in at a distant third.

Significant price deflation has crimped profit margins across the industry, but MTS has been hit harder than its bigger rivals.

Based on semi-annual figures, MTS’ EBITDA margin has contracted over 20% between November 2009 and November 2011.

In that same time, Wesfarmers and Woolworths have seen their EBITDA margins rise 5.4% and 1.7%, respectively.

There may be many other reasons behind the discrepancy, but it is apparent that MTS is struggling to keep up with the aggressive discounting being implemented by Wesfarmers and Woolworths.

Business restructuring

In early April, MTS shocked investors by announcing a $34 – $43 million restructuring charge related to the consolidation of its businesses and the closure of 15 regional Campbells Cash & Carry (Campbells) branches.

Additionally, MTS will book a $75 – $90 million non-cash restructuring charge related to the underperformance of two JVs in Queensland.

The write-downs followed a disappointing 1H12 for MTS, in which its underlying profit rose just 1.4% on-year to $116.6 million.

Campbells was the most disappointing business unit, with EBITA decreasing 35% to $16 million and EBITA margin dropping 73 basis points (bps) to 1.2%.

IGA Distribution – the largest of all the business units – saw its EBITA rise only 0.8% and EBITA margin slipping 5bps to 4.73%.

Outlook

Conditions for supermarket retailers like MTS have been terrible over the past two years and things are unlikely to turn around in a hurry.

MTS is in the unfortunate position of having to contend with two industry behemoths in Coles and Woolworths.

These companies have been forced into aggressive price discounting in order to attract customer sales, and this has come at a huge cost to MTS’ margins.

In response, MTS has looked to streamline its business through consolidation and the closure of its Campbells branches.

However it will be a stock to watch as there are questions as to whether more write-downs may be needed down the track if trading conditions deteriorate further and/or price deflation continues to cut into MTS’ margins.

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TRANSFIELD SERVICES LIMITED (TSE) listed since 2001 and included in S&P/ASX 200, is an international provider of operations, maintenance, asset management and project management services. Clients of Transfield Services include major national and international companies, as well as all levels of government.

Transfield announced that it expects net profit for FY12 to be $105 million, down from previous guidance of between $130 million to $135 million.

The company said its resource sector services company Easternwell had been hit by $7.4 million of unforeseen costs relating to a recent cyclone in Western Australia and wet weather in Queensland.

Bad weather in South Australia also was linked to another $1.6 million in unforseen costs.

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Metcash Limited (MTS) is a leading marketing and distribution company operating in the food and other fast moving consumer goods categories.

MTS operates via three business units: IGA Distribution (retail), Campbells Cash & Carry (wholesale) and Australian Liquor Marketers (ALM; liquor wholesale).

Metcash announced that it will restructure its business, cut 478 jobs and incur one-off charges to position the company for ongoing trading difficulties.

CEO Andrew Reitzer said that difficult conditions are a result of continued deflation which is pushing prices and margins down.

The company revealed its would incur a one-off restructuring charge of 34 million Australian dollars and also book a “largely” non-cash impairment charge of about $75 million-$90 million.

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