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Hi Paul, what’s the outlook of Coles in the next 6-12 months, buy, hold or sell? I bough at $15.40 May last year, now pretty much standing still after nearly a year, thinking of disposing it.
A: Thanks for the question.
I have been saying now for some months that I prefer Woolworths to Coles. It is just a better retailer – and that is why it is beating Coles in the sales war and improving share, earns a better margin, and ultimately, is doing better on the stockmarket. Coles has a lot of catching up to do – and the market is starting to realise that the investment drain (on new logistics and distribution centres, as well as in store) will be quite material.
This all said, I don’t think it is a sell (now) because on an implied price multiple of 21.0 times FY21 earnings and 20.2 times FY22 earnings, it is not that expensive and the outlook for the business/market is still sound. According to FN Arena, the brokers have a consensus target price of $18.43 (range $16.50 to $20.25), implying 16.9% upside from the current price of $15.77.
Hold.
