COL share price in focus
Coles is a leading Australian retailer providing everyday essentials including fresh food, groceries, general merchandise, liquor, fuel and financial services. It was founded in 1914 in Victoria and still calls Melbourne its home base.
Coles was formerly owned by the listed giant Wesfarmers from 2007 until 2018, when it was spun-off and listed as its own entity on the ASX under the ticker symbol ‘COL’. Coles’ earnings are unsurprisingly dominated by the supermarket side of the business, however, it partly or fully owns and operates adjacent businesses like flybuys, Liquorland, First Choice, Vintage Cellars, Coles Express and more.
While Coles is second to Woolworths in the supermarket sector, it still controls a significant share of the Australian grocery market (about 28%). Since its listing in 2018, Coles has established itself as fairly reliable dividend payer for investors seeking income.
Let’s talk profits
Annual reports and income statements can be very complex and hard to get your head around as a new investor. While there are any number of figures you could pull from the income statement, three key ones are revenue, gross margin, and profit.
Revenue is sometimes referred to as the ‘top line’ – everything starts here. If you can’t generate revenue, you can’t generate profit. What we’re interested in is not so much the absolute number, but the trend. COL last reported an annual revenue of $43,684m with a compound annual growth rate (CAGR) over the last 3 years of 3.9% per year.
Gross margin is the next big number on the income statement. The gross margin tells us how profitable the core products/services are – before you take into account all the overhead costs, how much money does the company make from selling $100 worth of goods/services? COL’s latest reported gross margin was 26.1%.
Finally, the number we’re most interested in – profit. Last financial year Coles Group Ltd reported a profit of $1,118m. That compares to 3 years ago when they made a profit of $1,005m, representing a CAGR of 3.6%.
A pulse check on COL shares
The next thing we need to consider is the capital health of the company. Is the company generating a reasonable return on their equity (the total shareholder value) and do they have a decent safety buffer? One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
In the case of Coles Group Ltd, the current net debt sits at $9,394m. High net debt can mean higher interest payments, greater instability, and higher sensitivity to interest rates. A negative value on the other hand indicates the company has more cash than debt – a good position to be in.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity. In other words, how leveraged is the company? COL has a debt/equity ratio of 278.4%, which means they have more debt than equity. This isn’t always a red flag if the company has stable revenue and good cash flow, but it certainly creates more risk.
Finally, we can look at the return on equity (ROE). The ROE tells us how much profit a company is generating as a percentage of its total equity – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. COL generated an ROE of 32.4% in FY24.
What to make of COL shares?
COL has a solid ROE and profits are trending upwards, so it could be a company worth keeping an eye on in 2025. However, revenue growth has been low.
Please keep in mind this should only be the beginning of your research. It’s important to get a good grasp of the company’s financials and compare it to its peers. It’s also important to make sure the company is priced fairly. To learn more about share price valuation, you can sign up for one of our many free online investing courses.
