Looking at Woolworths metrics, EBIT margin, revenue per store square metre etc, there is upside in Coles, provided that they bridge the gap.
But that is a big 'if'.
Firstly, Coles will never bridge the gap as a listed company. Fletcher announced a modest investment for next year, flagging a flat profit, and the sharemarket screamed foul ! Secondly, Woolies wont stand still, so bridging the gap cannot be the goal, they need to invest massively and leapfrog Woolies.
However, unshackled from the day-to-day market scrutiny, the pressure for short-term perfromance and the governance overhead (AIFRS, Sarbannes-Oxley and all that tish), they can take a longer-term view as a private company.
Another benefit for the likes of KKR is the chance to get their dirty mits on recession proof cashflows and gear CML's balance sheet to b*uggery.
Woolworths has proven that the supermarket business can be obscenely profitable. Where else can you get 20% + ROFE. As close to a money machine as you can get. Borrow at 7%, invest it for 20% +. Thats almost as good as my investment record ... heeeeheeee
That is the size of the prize. But KKR will not have to pay full tote odds for it. CML shareholders have no option but to accept a modest premium. The alternative is to continue to get smashed by Woolworths.
CML Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
