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Australian grocers win analyst upgrades on coronavirus stockpiling, home cooking

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Shares of Australia's biggest supermarket chain Woolworths Group Ltd jumped 9 per cent by mid-session on Tuesday, leading a broader market rebound of 3 per cent.

[SYDNEY] Analysts have slapped hefty earnings upgrades on Australia's supermarket companies as they predict a shift to home cooking in the age of coronavirus, helping the sector's shares defy a global rout.

As stores rush out rationing measures to cope with a demand spike from panic buying that has cleared many supermarket shelves, analysts said profits would leap in the short term and stay high as consumer behaviour changed.

"We believe COVID-19 will embed new behaviours in consumers, potentially leading to an acceleration in the rate of online penetration ... and is likely to see a return to cooking at home, at least in the near term," said UBS analysts in a note, using the official name for the illness that has infected nearly 400 Australians and led to five deaths.

The investment bank estimated sales of large grocers have risen by a quarter in recent weeks, compared with a year earlier, while sales of non-perishable essentials targeted by stockpilers like tissues and pasta were up by half.

Shares of Australia's biggest supermarket chain Woolworths Group Ltd jumped 9 per cent by mid-session on Tuesday, leading a broader market rebound of 3 per cent.

Since Feb. 20, when fears about the coronavirus triggered a global stocks meltdown, Woolworths has fallen by less than 10 per cent, compared with a 28 per cent dive in the broader Australian market.

No. 2 grocer Coles Group Ltd was up 5 per cent on Tuesday and has risen 2 per cent since Feb. 20, while Metcash Ltd, which supplies goods to independent grocery stores has risen 3.5 per cent.

As shoppers have stripped supermarket shelves of routine items from toilet paper to rice to paracetemol, Woolworths and Coles have imposed tighter purchase limits by the day, an unthinkable prospect weeks earlier when the companies relied on toy giveaways to lure shoppers.

The duopoly, which jointly accounts for nearly three quarters of Australian grocery sales, is now making regular public announcements urging people to buy less. On Monday, Coles said it wanted to hire 5,000 casual staff to help re-stock shelves during the pandemic panic.

"Coles Group's and Woolworths Group's supermarkets will benefit from the coronavirus outbreak as people eat out less," analysts for ratings agency Moody's wrote in a note.

However, they noted that stockpiling would "skew results artificially and therefore a three-to-six month view will be a more reliable indicator of performance".

 

REUTERS