Analyst Note
| Johannes Faul, CFA |We maintain our fair value estimate for no-moat Coles at AUD 13.60 per share, with the group’s third-quarter fiscal 2022 sales growth of 3.6% broadly in line with our expectation of 3.4%. Our fiscal 2022 sales and earnings estimates are virtually unchanged. COVID-19-related disruptions continued to add significant costs across Coles’ businesses and our forecast of materially lower group EBIT margins is unchanged. During the quarter, the main driver of pandemic-related costs was absenteeism at warehouses and stores due to isolation requirements. We estimate COVID-19-costs to be about AUD 115 million higher in fiscal 2022 than in the prior fiscal year, shaving off some 30 basis points from operating margins. The recent floods on the Australian east coast damaged stores and goods, and increased freight costs, adding AUD 30 million in one-off costs. However, we expect the costs of the floods to be recovered from insurance by fiscal 2023.