Shares of supermarket giant Coles returned to the Australian Securities Exchange after an 11-year absence with a strong performance in a broadly falling market on Wednesday.
Under the move, shoppers can look forward to a new-look web presence, more “everyday low prices” and a bolstered product line.
Coles, which last traded in its own right in 2007 before its purchase by Western Australian conglomerate Wesfarmers, resumed at $12.49 a share about 11am – an hour after markets opened.
Late in the day it was changing hands for $12.60, taking its market value to more than $18 billion.
The performance bucked the trend of a 0.6 per cent fall in the benchmark All Ordinaries Index to a near two-year low amid another sell-off in global stocks.
Wesfarmers shareholders approved the demerger of Coles – the largest in Australian company history – from its parent on Monday. Under a scheme of arrangement, they were given one Coles share for each share they held in Wesfarmers.
Wesfarmers retained a 15 per cent minority interest in the new company.
The move creates a new top-30 company on the ASX, with leading positions in supermarkets, liquor and convenience stores.
The next phase of Coles
Coles chairman James Graham said listing as a standalone business marked the next phase in the evolution of a company that began as a single store on Smith Street in Collingwood 104 years ago.
Managing director Steven Cain added that, with a renewed store base, a change in fresh food quality and a significantly better value position, Coles was “focused on making life easier for our customers, with more convenient locations, products and home shopping”.
For supermarkets, this means a continued transformation of its food offerings, an extended move to “everyday low prices” and an expansion of Coles online to support “offer anytime, anywhere shopping”. As part of the process, it is planning to build two automated distribution centres.
Veteran market commentator Paul Rickard told Nabtrade that Coles was well positioned to grow and was a good option for investors looking for relatively low risk and stable options.
“It is expected to be attractive to mum-and-dad investors seeking income growth with defensive characteristics – strong cash generation, resilient earnings, strong balance sheet and high dividend payout ratio,” he said.
For what it’s worth
Coles’ return to the sharemarket was largely in line with leading bank financial analysts’ broad valuation range of between $11 and $14.20 a share.
Citi values Coles at $14.20 a share, Deutsche Bank is at $13 and JP Morgan between $12.70 and $13.50. Morgan Stanley is sitting on a mid-point value of $11.09.
Mr Rickard said newly de-merged companies typically underperform in the first six months before finding support and outperforming over the medium term.
He said that, following a demerger, the market is often awash with shareholders who decide they do not want to own the shares and look to offload their holdings. However, over time, the market recognises the potential of the company and investors buy the stock, pushing up its price.
Coles holds 31 per cent of the Australian supermarket sector, with rival Woolworths at 38 per cent and German discount supermarket Aldi commanding 10 per cent.
With 112,000 staff in 2500 stores nationwide, it posted sales of $39 billion last year.
Business information company IBISWorld research has found the supermarket and grocery store industry is expected to turn over $103.4 billion in 2018-19 and grow at an annualised 2 per cent rate over each of the next five years.
IBISWorld market analyst Tom Youl said: “While a forecast rise in disposable income will likely provide opportunities for industry players, Coles must reinvigorate its branding and pricing strategies in order to bring lost foot traffic back to its stores.”