News: COL Australia's Coles first-half profit jumps nearly 15%, page-24

Citirates COL asBuy(1) -

Coles delivered 1H21 earnings (EBIT) of $1,020m (post-AASB16) and EPS of 42cps, around 2% ahead of Citi.

Supermarket gross margins expanded by 71bps in 1H21, but Coles saw like for like sales momentum slow from 9.7% in 1Q21 to 5.0% in 2Q21.

In its initial response, Citi notes that the first 6 weeks of trading in 2H21 have seen sales momentum slow further to just 3.3%, with online slowing to 37% growth, down from 48% in 1H21.

Capex guidance has been increased to $1.1 billion from $1.0 billion previously to focus on Coles Local, online and store efficiencies.

Citi expects consensus 2H21 downgrades following the slowing top-line and guidance for negative earnings growth.

Buy and price target of $21.20 are retained.

Target price is$21.20Current Price is$18.18Difference:$3.02
IfCOLmeets the Citi target it will return approximately17%(excluding dividends, fees and charges).

Current consensus price target is$19.61, suggesting upside of12.5%(ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

	Citi forecasts a full yearFY21dividend of63.50cents and EPS of75.40cents. At the last closing share price the estimated dividend yield is3.49%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is24.11.