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Coles Group Ltd FY20 Result – Broadly Neutral

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Coles Group Ltd (ASX: COL) is a large Australian retailer, providing customers with everyday products including fresh food, groceries, household goods, liquor, fuel and financial services via its store network and online platforms. The Coles supermarkets segment accounts for most of the group's sales and earnings. Coles is the second-largest Australian grocery retailer behind Woolworths Group Ltd (ASX: WOW), with a market share of around 29% of the grocery market compared Woolworths market share of around 37%.

 

Coles-St-Peters-Entrance

 

What are the key features of the FY20 result for Coles group?

Coles reported net profit after tax for FY20 is $951 million, up 7.1% from FY19. Sales revenue for FY20 is $37,408 million, up 6.9% from FY19. Basic earnings per share for FY20 is 71.3 cents, up 7.1% from FY19. Total dividend per share for FY20 is 57.5 cents (fully franked).

Supermarket performance was strong during FY20. Supermarket sales revenue was $33.0 billion for FY20, an increase of 6.8% from FY19. Interestingly, supermarket sales increased by 7.6% in Q4FY20. This increase in sales from Supermarkets was driven by a strong sales growth during the COVID-19 pandemic. Further, Government imposed social distancing measures led to more Australians working and spending more time at home, which in turn led to greater at home consumption of meals and other household items, which increased consumer demand for Coles products in this period. Coles Online sales revenue grew by 18.1% during FY20. However, this service was temporarily disrupted in March and April during the peak of COVID-19.

Liquor performance was also strong in FY20. Liquor sales revenue was $3.3 billion in FY20, an increase of 8.0% from FY19. Interestingly, during Q4FY20, Liquor sales revenue increased by 20.3%. This result was driven by COVID-19 and government-imposed restrictions on hotels, pubs, clubs and licensed venue operators, that resulted in consumers purchasing alcohol from retail outlets, instead of venues mentioned above.  

Express (convenience stores) sales revenue was $1.1 billion for FY20, an increase of 5.6% from FY19. This was driven by COVID-19 related pantry stocking and strong basket size growth in the latter part of the year, which more than offset lower foot traffic in-store following government ‘stay at home’ directives. Fuel volumes declined by 2.3% during the year. This was attributed to less road traffic due to government ‘stay at home’ directives during the peak of COVID-19.

What is the outlook for Coles group?

In the short-term, it is clear from this result that the COVID-19 pandemic has caused an increase in sales from most Coles businesses. This is particularly apparent in Coles supermarket and liquor businesses. This trend may continue to occur for some time until there is a mass distributed vaccine for COVID-19. This is shown through Coles first six weeks of Q1FY21 supermarket and liquor sales are in line with the second half of FY20. However, there is significant variability between states and store locations within states as a result of continuing impact of COVID-19 restrictions. In express, average weekly fuel volumes in the early part of Q1FY21 is broadly in-line with the June exist rate, with again significant variation between states and stores around Australia.  

What is the market reaction to the FY20 result?

The market reaction to Coles FY20 result is slightly negative. Coles share price is down 1.3% and is currently trading at A$18.67 (18 August 2020). Coles is trading at a forward P/E ratio in the mid-twenties and has an annual dividend yield of around 2.2%.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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