After the uninspiring Woolworths result, all eyes were on Wesfarmers and its coal/Coles. Brokers were generally pretty neutral; not convinced that the Coles result implied a re-rating. A “good result” but in line with expectations. It does at least reassure over the dividend, estimated to be about 5%. Goldman is one of the more bullish with a buy and a price taregt of $39.34:
1. Coles Food and Liquor – Reported solid 3Q12 sales results. While comparable store sales momentum moderated in 3Q12, this was driven by a step-up in deflation. We note 3Q12 was the 11th consecutive quarter that Coles reported comparable store sales growth ahead of its key competitor, Woolworths, and Coles continues to grow total sales ahead of the broader market.
2. Read through for discretionary retail – WES’ 3Q12 sales at its more discretionary businesses were mixed. Target’s sales momentum deteriorated significantly. However, on the positive side WES noted that this was partially due to less discounting, given Target’s clean inventory position. It is difficult to draw too many conclusions for other discretionary retailers, but WES’ 3Q12 sales results continue to highlight that consumers remain cautious and focused on value.
Macquarie has a neutral rating and a lower price target of $29.74. Predictably enough, Wesfarmers retail operations are really becoming a proxy fro investment in Australian consumer sentiment and the strength of the non-resources Australian economy:
WES’ retail businesses grew by 3.2% (ex convenience) over 3Q12 to $11.5bn. This is in line with estimated total retail market growth ( excluding out of home brands) of c.3.3% as measured by ABS. WES’ retail businesses have a bias toward everyday basics which are by definition often non expandable categories driven by population growth (c.1.5% pa). WES’s aggregate retail businesses were previously growing in excess of market growth reflecting market share gains in retail categories that respond to retail attributes of price (low) and product (range). However, continued deterioration in discount department store performance has crimped growth.
Deutsche has a hold, saying the retail strength is fully reflected in the price. Deutsche has made ~6% downgrades to its resources forecasts following the coal update. It has a price target of $28.