Coles Investors Go Shopping For Shares

The Age

Wednesday August 2, 2006

REBECCA URBAN, RETAIL REPORTER

THE plunge in Coles Myer's share price is expected to continue, as the retailer's highly anticipated strategic plan continues to underwhelm investors.

Widespread disappointment from analysts helped strip 7 per cent from its market value since it unveiled its long-term plan to simplify its business.

To be renamed Coles Group Limited following the $1.4 billion sale of Myer, it will scrap Kmart and Bi-Lo and group its food, liquor, fuel and merchandise business under one brand.

At least four leading stockbroking houses downgraded their recommendations on the company. Numerous others clipped their internal forecasts because of restructure costs, the expectation of flattened earnings and lack of long-term guidance.

Despite the market's negative reaction, chief executive John Fletcher stood by his strategy.

In an internal email to staff, Mr Fletcher said the market's response to the short-term impact on earnings did not surprise him. He asked staff to not be distracted by the external commentary on the business.

"We can be confident that our performance over the last five years has earned us the right to communicate a strategic direction rather than a five-year plan, with detailed financial targets," Mr Fletcher said in the email.

"No other company in Australia, including our direct competitor, is expected to publish long-term financial targets."

But market pundits are tipping shares will continue to fall.

Bell Potter's research director Peter Quinton said confusion about future earnings would put pressure the share price.

"When the market is confused about something the first thing it does is continue to sell the stock until there's clarity. And I don't think that's going to happen for at least six months, perhaps longer," he said.

Yesterday's 47? fall to $10.90 was the retailer's biggest single-day drop in five months.

WHAT THE BROKERS SAY

PREVIOUS NEW

BROKER RECOMMENDATION RECOMMENDATION

ABN Amro Hold Sell

Macquarie Research Neutral Underperform

Morgan Stanley Equalweight Underweight

Citigroup Sell Sell

JPMorgan Underweight Underweight

Austock Securities Buy Hold

Merrill Lynch Sell Sell

Goldman Sachs JBWere Hold Hold