“Coles (COL)’s first half of 2024 results were above expectations, driven mainly by the core supermarkets segment,” Raymond said.
“The key positives were supermarkets own brand sales increased 7.6%. with eCom sales jumping 29.2%; investments to reduce total loss saw an improvement in loss through 2Q24 with expectations for further benefits in the second half of 2024; and supermarkets sales growth of 4.9% in early second half 2024 was well above Woolworths’ (WOW) Australian Food growth of approximately 1.5%.
“The key negatives were liquor earnings were below our forecast and Group EBIT margin fell 30 basis points to 4.8%.
“Following the better-than-expected first half of 2024 result and the solid start to the second half of 2024, we increase FY24-26F underlying EBIT by between 3-4%.
“This reflects upgrades to supermarkets earnings forecasts, partially offset by downgrades to Liquor.
“Our target price rises by $18.70 (from $16.60) on the back of updates to earnings forecasts and a roll-forward of our model to financial year 2025 forecasts.
“We maintain our Add rating, with Coles being our preference in the Consumer Staples sector,” Raymond said.
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