Coles – Where is Fair Value?

Coles has under invested in the supply chain and online platform vs Woolworths and therefore, investors need to be prepared for lower returns as Coles steps up capital expenditure over the coming years.

If we assume 3 – 5% EPS growth, (half that of WOW), Coles will offer a 5.4% dividend yield into FY20, based on earnings per share of $0.80

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Coles trades on 18x FY19 earnings and with little upside to the share price, we recommend investors add a covered call to enhance the income return.

 

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