COL share price in focus
Coles is an Australian retailer providing customers with everyday products including fresh food, groceries, general merchandise, liquor, fuel and financial services. It was founded in 1914 in Victoria which it still calls its home base.
Coles was formerly owned by conglomerate Wesfarmers from 2007 until 2018, when it was spun-off and listed as a separate entity on the ASX under the ticker symbol ‘COL’. Coles’ earnings are dominated by the supermarkets side of the business, however, it partly or fully owns or operates adjacent businesses like flybuys, Liquorland, First Choice, Vintage Cellars, Coles Express and more.
While Coles is in a way the ‘little brother’ to Woolworths, it still controls a significant share of the Australian grocery market (about 28%). In its short time as its own listed entity, Coles has established itself as a handy and reliable dividend payer.
Since we consider Coles Group Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY24, Coles Group Ltd had an ROIC of 14.40% and revenue has compounded at 3.9% in recent years. Anything over 10% ROIC is pretty strong for a mature-style business, since its cost of capital is likely below that level, so Coles Group Ltd crosses this hurdle.
A2M shares
Founded in New Zealand in 2000, The a2 Milk Company is involved with the sale of products sold under the a2 brand which contain the naturally occurring A2 protein type.
The company is not responsible for producing any of its products itself. It has access to over 25 certified dairy farms across Australia where its suppliers handle the production process. Additionally, its instant formula products are produced by its supply partner Synlait Milk in New Zealand.
There are various claimed health benefits of a2 Milk, the main one being that it’s easier to digest than ‘normal’ milk, so some people that normally have trouble with milk can stomach it a bit better.
COL share price valuation
We would consider COL to be a ‘mature’ or ‘blue-chip’ business, so some of the metrics that might be important to us include the debt/equity ratio, average yield, and return on equity, or ROE. For FY24, Coles Group Ltd reported a debt/equity ratio of 278.4%, meaning the company is leveraged (it has more debt than equity). This can increase risk so it’s important that a leveraged company has stable returns and the capacity to pay interest on its debts.
Over the last 5 years, COL has delivered an average dividend yield of 3.8% per year. This is important to note if you’re looking for income from your investments.
Finally, in FY24, COL reported an ROE of 32.4%. For a mature business you generally want to see an ROE of more than 10%, so COL clears this hurdle.
As a growth company, some of the trends we would be looking for from A2M shares include revenue growth, profit growth, and return on equity (ROE). Over the last 3 years, A2M has increased revenue at a rate of 11.6% per year to hit $1,673m in FY24. Meanwhile, net profit has risen from $81m to $168m. A2M’s last reported ROE was 12.8%.
Please keep in mind that context is important – these metrics give us some indication of company performance, but we need a lot more info to work out the value of COL or A2M shares. To learn more about valuation, I’d recommend signing up for one of our free online investing courses.
