Consumer Staple Stocks News and Tips on the ASX.
Share to sell – Graincorp (GNC)
GNC’s FY15 result was in line with the company’s guidance. We suspect that FY16 will be another below-average year for cropping and the winter harvest is likely to be downgraded over coming weeks. With the effects of the El Nino weather phenomenon also likely to weigh – through lower crop yields and less revenue from GNC’s grain handling business – as well as the stock being on the verge of breaking down technically, we feel shorts are an appropriate course of action. We wouldn’t be surprised to see the stock move towards the $6.50 region over the next 6-12 months.
Share to Sell Metcash Limited (MTS)
- Metcash Food & Grocery, comprising IGA supermarket and Campbells Wholesale
- Australian Liquor Marketers (ALM)
- Metcash Hardware and Automotive, comprising Mitre 10 and the Automotive Brands Group (83.1%-owned)
Share to Buy: Wesfarmers Limited (WES)
Wesfarmers (WES) is a diversified group with operations in hardware retailing, supermarkets, liquor and petrol, discount department stores, industrial supplies, coal mining, gas, fertilisers and chemicals. Its portfolio comprises of some of Australia’s biggest and well-known brands like Coles, Target, Kmart and Bunnings. Insurance sale Last month, Insurance Australia Group (IAG) agreed to buy WES’ insurance underwriting business for $1.85 billion. Wesfarmers is widely believed to have gotten a good price for from IAG. The insurance underwriting business generated only $136 million EBITA in FY13. That implies a transaction multiple of 13.6x, which is not cheap and suggests to us WES won out in the deal. The IAG deal followed WES’ decision to sell its 40% stake in WA-based industrial gas producer, Air Liquide (ALWA), for $100 million. Combined, WES netted approximately $2 billion from the two transactions with the cash inflow improving an already healthy balance sheet – net debt to equity was just 17% in FY13. With the balance sheet in good shape and no major capital spending programs on the horizon, we anticipate WES will use the proceeds to reward shareholders via a capital return initiative. 1Q14 sales WES’ 1Q14 sales results indicated food and liquor sales for the September quarter were $6.9 billion, up 4.4% on the previous corresponding period. Coles recorded comparable food and liquor store sales growth of 3.4%, with comparable food store sales growth of 4.0%. In a concern, the group noted food and liquor price deflation of 2.5%, due to significant fresh produce deflation and Coles' investment in lower prices. Whilst price deflation has been an ongoing issue for retailers, WES is faring better than its major rival Woolworths, which suffered food and liquor price deflation of 4.3% in 1Q14.
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.
JB HI-FI Breaking Out – Share To Buy
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. Margin growth and consumer optimism JBH’s 1H13 results impressed on several fronts, with sales revenue reaching $1.3 billion, 3.1% higher than the 1H12 result. Its net profit climbed to $82.1 million, a 3% improvement compared to the prior corresponding half. JBH’s most surprising result was its gross margin, which increased by 28 basis points. This was a very impressive result considering that the gross margin of its competitor, Harvey Norman, fell by 260 basis points over the same period. We think that the operating environment for retailers is looking more optimistic, with the Westpac Consumer Sentiment Index returning to a reading of over 100 in the last survey. In its latest reading, the consumer sentiment index settled at 102.2 in June, 4.7% higher compared to the prior month’s reading. Sales and profit upgrade Last month JBH announced an update to its previous sales and net profit after tax (NPAT) guidance for FY13. The company now expects sales in FY13 to be around $3.3 billion and NPAT to be within the range of $112.0 million to $116.0 million, a 7% to 11% increase in NPAT on the prior year. The previous FY13 guidance was for sales circa $3.25 billion and NPAT within the range of $108.0 million to $112.0 million. JBH said the upgrade has been driven by stronger than expected sales in the second half of FY13. Specifically the company said sales growth in Australian and New Zealand for the four months ended 30 April 2013 was 10.3% and comparable store sales growth was 3.0%. Outlook While the opening of 13 new stores in FY13 drove much of JBH’s impressive sales growth, comparable sales growth was still solid. JBH’s 3% comparable stores sales growth is running at a much higher level than fellow retailers David Jones who saw a 3.4% decline in comparable stores sales in the recent quarter and Myer who only saw a 0.4% rise. The other factor we see helping JBH is the lower Australian dollar. We think this over the long-term will see consumers turn back to retail stores as the online market becomes relatively more expensive. Overall, we see continued strength for JBH’s share price to be driven by strong sales growth and solid margins. JB HI-FI was listed as a buy share for our members on July 27th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Ardent Leisure Group (AAD) – Share To Buy
Ardent Leisure Group (AAD), formerly Macquarie Leisure Trust Group, is a leisure property operator and owner with large businesses in Australian theme parks, bowling alleys and health clubs. The group is divided into five main divisions: >> Health Clubs >> Main Event Entertainment >> Theme Parks >> Marinas >> Bowling 3Q trading update The group’s 3Q13 trading update showed solid improvement when compared to the same nine months in FY12. AAD’s group revenue was $336.7 million, a 13.2% increase. Revenue for Theme Parks was 4.2% higher than the prior corresponding period, at $79.9 million. EBITDA grew 0.9% to $27.6 million. The Bowling Division continues to be a drag on earnings with EBITDA for the nine months declining 16.1% to $10.2 million. Goodlife Health Clubs EBITDA increased 42.8% to $21.6 million, assisted by the acquisitions of the Fenix and Fitness First businesses in 1H13. Main Event continues to impress with revenue expanding 28.1% to US$53.1 million and EBITDA rising 38.1% to US$12.8 million. Main Event Main Event is a family entertainment concept with broad appeal to any age group, as well as the corporate market with its cafe, conference and bar facilities. There are currently 12 Main Events located in Texas, U.S.A., with activities that include: >> Ten pin bowling - with state of the art lanes >> Laser tag >> Games arcade - over 100 of the latest video games >> Rock climbing >> Glow golf The group is planning to expand the number of complexes in the US to 19 by FY15, with construction commencing on a thirteenth Main Event site in Phoenix. We really like the group's expansion plans, particularly the metrics of site selection, which focuses on highly dense, greater affluence and high growth areas. The yield play AAD offers a healthy distribution yield for a company considered to be in a growth phase. The group is listed as a trust, which requires it to distribute all excess earnings on a yearly basis to unit holders. AAD is forecasted to pay a distribution of 12 cents a security for FY13, which equates to a healthy yield of 7.0% based on current prices. AAD has maintained or increased its distribution over the last six payments, with annual operating cash flow being stable at $60 million over the period. Outlook AAD’s third quarter trading update showed solid growth for all but the Bowling division. We think that a recent change of management should see the Bowling division return to growth in the June or September quarter. We also believe the Main Event division will be a main source of growth in coming years, particularly as it expands into higher growth areas of the US. Ardent was listed as a share to buy for our members on June 28th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Super Retail Group Limited (SUL)
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. Super retail group was issued as a share to buy to our members on March 25th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only SUL but all our current trading ideas. Simply click here and starting trading today, free for 7 days.
Share Tip: Woolworths Limited (WOW)
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. This article was distributed to our members on January 14th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only Woolworths but all our current trading ideas. Simply click here and starting trading today.
Share Tip: Wotif Holdings Limited
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. This article was distributed to our members on December 18th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only Wotif but all our current trading ideas. Simply click here and starting trading today.
Wotif Holdings Stock To Sell
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. If you would like further information you can sign up for FREE 7 day recommendations and access all our research files on not only Wotif but all our current trading ideas. Simply click here and starting trading today.
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Nov 2014 - Nov 2016
Our short-term focused Trading Report returned 30.03%, outperforming the ASX/200 Accumulation Index by 23.58%*
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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