Investors can be fickle, along with analysts and others in the market.
After spending months bagging Wesfarmers over its Coles Group buy and then questioning whether it was working and the new imported management were up to it, investors and some analysts have changed tack 180 degrees.
Now Wesfarmers and Coles are a good deal and all that earlier scepticism has gone.
And while analysts and others have been questioning Wesfarmers’ performance, and especially that of Coles supermarkets, investors have bid the shares up more than 60% this year.
In contrast the shares on rival Woolworths, are only up 9%.
Woolies is a defensive stock in many investors eyes, Wesfarmers is a recovery story, or so the thinking goes.
Coles and Wesfarmers are clearly ‘hot’ and Woolies, which is still clearly more profitable and stronger financially, is on the outer.
Nowhere was this changed view of the two groups evident than on Friday
Both groups released first quarter sales updates last week and no one would have picked the result by the close of trading Friday.
Wesfarmers’ shares outperformed Woolworths, rising nearly 8% on news that its supermarket business had recorded comparable sales growth of 6.1% for the September quarter, up from the 4.6% improvement in the June quarter (which was the final quarter of the 20-08-09 financial year.
Total food and liquor sales rose 7.3% in the three months to September.
Woolworths had earlier reported a 5.8% rise in comparable store sales (7.8% on a topline basis) and its stock ended the week lower as the result undershot some analysts’ expectations.
On Friday Wesfarmers shares jumped $1.82, or 6.9%, to $28.26, while Woolworths fell 10 cents to $29.31.
Coles has a rebound well underway, which is understandable given the terrible management of the group before Wesfarmers bought it.
Woolies is continuing to dream up ideas: the move into hardware with Lowes of the US via a takeover of Danks Holdings, is close to being successful. But the competition regulator, the ACCC might have something to say about that.
It has asked the hardware retailing industry if it wants to make any comments on the proposed move by Woolies and its partner.
That was an initial sell for Wesfarmers, now the market has ignored that.
Bunnings, which is Wesfarmers big retailing weapon, boosted cash retail sales 15% in the first quarter and has a number of new super stores ready to be built and opened, and other expansion ideas before Woolies and Lowes can reach critical mass.
Bunnings now includes the Officeworks chain. Wesfarmers did not give a sales figure for this part of the business, only describing it as "moderate’
Sales at the Wesfarmers’ Target discount department store chain rose 4.3%, with same-store revenue up a slack 1.8 percent%. Woolies Big W chain did far better in the first quarter.
The struggling Kmart chain saw sales fall 2.3% in the September quarter.
Wesfarmers Resources, dominated by coal operations in Queensland, NSW and Western Australia, seems to be well placed with demand firming from the steel sector in particular, which is lifting demand for coking coal or all types.
But it does face returns from coal exports being clipped by the soaring value of the Australian dollar.
Even if there are hedges in place, the cost of those will cut returns and when those hedges expire, Wesfarmers resources business could face what’s called ‘rollover shock’ as the impact of the higher Aussie dollar hurts returns.
The company said that it was expecting "Significantly reduced earnings in FY10." from its resources division.
Woodside shares had a double hit Friday from bad news on supply contracts for its $12 billion Pluto LNG project and a big fall in revenue in the September quarter because of lower production, oil prices and the stronger Australian dollar.
Woodside shares dropped 94¢, or 1.8%, to $51.80 on Friday after the company revealed these hits in its September quarter production review.
Chevron says it has signed deals with Apache Corp (from the US) and Kuwait Foreign Petroleum Exploration (Kufpec) to buy gas from their projects that was originally intended for Woodside’s Pluto project.
Apache and KUFPEC have told Woodside they would be supplying 2.1 trillion cubic feet of gas for Chevron’s Wheatstone liquefied natural gas development from their WA 356-P permit in return for a 25% stake in the project.
Woodside said the Chevron deals would not affect its timeline for Pluto, which is now 78% complete and on track for first gas by the end of next year, with first LNG in early 2011.
Woodside said it was still talking to a number of third party gas suppliers.
"Woodside is beginning a 20-plus well Greater Pluto exploration drilling program this quarter, and expects the results of this initial campaign to substantially contribute to an expansion of the foundation Pluto LNG Project, which is now 78% complete," it told the ASX on Friday..
"As advised in our 19 August 2009 Half Year Results presentation, Woodside’s current Carnarvon basin exploration portfolio includes 39 prospects and 35+ leads."
This news came as Woodside revealed a $710 million, or 40% drop in revenue for the September quarter compared with the same time last year.
September quarter sales totalled $A1.064 billion, down from the $A1.744 billion for the same quarter of 2008 when global oil prices peaked in July of that year around $US147 a barrel.
