|
Coles Myer enjoyed a rush of earnings upgrades yesterday on the strength
of a revival in its Kmart and Target businesses, but analysts were not convinced
that the retailer is finally on the road to complete recovery.
Morgan Stanley, ABN Amro, and UBS Warburg were among those concerned by yet
more evidence of a slowdown in growth by the dominant supermarkets division.
On Monday the division posted an 11 per cent rise in interim pre-tax
earnings, short of some market forecasts as the cost of doing business increased
and sales fell.
``Coles has a competitive food business, but it has to run harder," wrote
Morgan Stanley analyst Martin Yule in a note to clients, adding that it was
important that Coles builds sales volumes.
At the same time, there is a fear that a renewed push by Coles, which is
preparing to launch new marketing campaigns from next month, may heighten the
already intense competition in the industry.
Kmart almost doubling its pre-tax profits and Target increasing its earnings
by nearly 71 per cent encouraged most major investment banks to raise their
forecasts for Coles's profits for the 2002-03 financial year by as much as 12
per cent.
Several now expect Coles to exceed its own forecast of $425 million to $435
million.
UBS Warburg and Deutsche Bank both expect the retailer to earn $450 million,
Morgan Stanley is pitching for $446 million and JP Morgan for $437.6 million.
ABN Amro estimates that Coles will make $426 million and is reserving its
judgement on a recovery.
``While Kmart and Target may have finally achieved some level of earnings
momentum, Coles Myer's inconsistent delivery is reason enough for us to maintain
our cautious stance on the stock at this stage," wrote ABN Amro retail analyst
James Casey.
Coles shares rose another 15c to $6.19, making a two-day gain of 11 per
cent.
There was speculation the company decided against a profit upgrade to
conserve cash for its $400 million petrol alliance with Shell.
UBS Warburg suggested the reasons were more straightforward.
``They've set their hurdle and they want to clear it," said analyst Michael
Peet. ``It's only early days in the company's recovery and there has already
been one small stumble. [Chief executive John] Fletcher probably wants to make
sure there are no more."
|
Print Entire Page
