Coles Group (CGJ) Update

Submitted by Craig Strzelecki on 14 September, 2007 - 11:51

Coles Group (CGJ) has a reduced share price target of $15.21 (down 21 cents) from stock analyst UBS. An independent expert values Coles at $16.21-$18.23: Despite the WES offer not being in the fair value range, the Independent Expert (IE) has advised that the offer is in the best interests of shareholders in the absence of a superior proposal. On July 2, the CGJ Board recommended the offer subject to the IE determining the offer was fair & reasonable. In the analyst's view this highlights the lack of alternatives the Board has. CGJ shareholders might extract some of this potential value under WES ownership. Coles reports FY07 results on Wednesday September 19th: NPAT guidance is "in the order of $787m". They forecast FY07 NPAT to be $769m versus consensus at $774m. A final dividend of 25cps has already been declared. The analysts believe 2H07 performance of Food & Liquor (F&L) is more important than the reported NPAT number. 4Q07 F&L like-for-like (LFL) sales growth & any commentary on more recent trading will be key. They would not be surprised to see a 4Q07 sales growth worse than our +1% forecast. More importantly the market should focus on the leverage impact on margins from the weak sales growth. They are forecasting a 39bps decline in 2H07. Other features to focus on will be 2H working capital position, capex & operating cashflow. Payment of cash provisions for redundancies will impact operating cashflow. They have reduced our price target by 7cents to $15.21. Our valuation is equal to our price target and is based on the implied value of the WES offer. Read a previous Coles Group (CGJ) recommendation, and another CGJ stock recommendation.

Coles Group Limited is listed on the Australian Stock Exchange (ASX) under stock code CGJ. You can view their investor website here. The chairman of Coles Group is Richard Allert, AM and the CEO is John Fletcher. Coles Group Limited is one of Australia's largest retailers with more than 2,900 stores throughout Australia and New Zealand. With over 350,000 shareholders, more than 165,000 employees. The company carries the following retail brands: Coles, Bi-Lo, 1st Choice Liquor Superstore, Liquorland, Vintage Cellars, Officeworks, Target, K-Mart, Harris Technology and Pharmacy Direct. Find out the meaning of the recommendations in this primer. CGJ was listed on the ASX on 24 September, 1929. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade CGJ. Check your charts and good luck with your share trading!

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