Tale Of Two Consumer Stocks

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jan 31 2018

In this week's Weekly Insights (first edition of the new year):

-Welcome To 2018
-Tale Of Two Consumer Stocks
-Conviction Calls: JPMorgan/Ord Minnett, CS and Morgans
-AFIC Provides The Answer

By Rudi Filapek-Vandyck, Editor FNArena

Welcome To 2018

Welcome to 2018. Welcome to the first Weekly Insights of the new calendar year. We have not remained completely idle over the annual holiday season, instead making changes and improvements on the technical side which, all else remaining equal, should now result in faster access to the FNArena website and its numerous tools and applications.

In addition, we produced and published our first Special Report for the year: "Stories From 2017 To Re-Read In 2018" - for those who'd like to catch up on valuable stories they might have missed last year (it's ok, we're all busy).

Paid subscribers not yet familiar with the Special Reports section; head to the drop down menu on the website starting with Analysis & Data and check out the many goodies on offer.

Plus we've now added a Guide To The Website (see the black horizontal bar across the website) which hopefully will make it easier to navigate and to find more useful tips, tools and applications.

Lastly, FNArena has developed a brand new Australian Reporting Season Monitor, soon to become a permanent feature on our website. This will become everybody's one-stop destination for everything related to corporate results locally. Stay tuned as we are preparing for official take-off... not long now!

Tale Of Two Consumer Stocks

One section that has also been updated is the dedicated All-Weather Stocks page on the website (sorry, paying subscribers only). One regular complaint from last year was subscribers found it impractical to stay on top of my research through regular notes and observations provided by Weekly Insights updates.

This then led to questions such as why is this or that stock not in your table? The list of All-Weather Performers has been updated, and will continuously be reviewed and updated as time goes by. In line with my share market research, and with the strategy employed in the FNArena/Vested Equities Al-Weather Model Portfolio, we have now added two extra sections: Emerging New Business Models and Prime Growth Stories.

A number of FNArena subscribers has grabbed the opportunity provided by the December-January festive season to congratulate myself and FNArena for providing this unique piece of research into Australian equities. If you are a paying subscriber, and you have as yet not paid any/much attention, then maybe today is as good a time as any?

The All-Weather Performers section at present showcases 40 different stocks, accompanied by plenty of writings and updates since 2013. Note there are Special Reports on the theme that can be accessed and downloaded as well. Feel free to ask more questions when necessary.


One of the stocks included is Bapcor ((BAP)), a regularly recurring name in my All-Weather Performers research. I have stated many times in the past, and haven't changed my view to date, this company is blessed with one of the most resilient operations on the Australian Stock Exchange (hence its inclusion in my selection of All-Weather Performers).

One glance over the share price performance since listing in 2014 suffices to understand this company has the support of many happy shareholders. Yet, 2017 was pretty disappointing in terms of actual rewards for loyal shareholders. Nothing to do with management or the company itself, however.

How many AGMs did you visit last year where management and the board comfortably predicted 30% growth for the year ahead?

So what was holding back the performance last year? Amazon, of course, or more to the point: the fear of destruction from online competition through Amazon. There was also a protracted acquisition process in New Zealand, which added several businesses that had to be put up for sale (as they don't fit in with the rest of the operations). Then there's all the talk about self-driving vehicles and electric cars.

For those who are as yet not familiar with Bapcor; this is the number one provider of automotive aftermarket parts and services on both sides of the Tasman. The mechanic who repairs your car at the garage probably orders his spare parts from Bapcor. The business is predominantly wholesale, with a smaller retail facing segment through chains including Autobarn, Autopro and Opposite Lock.

In case you are more familiar with Super Retail ((SUL)), this is the main competitor for their Supercheap Auto operations. I would not be surprised if, post a disappointing 2017, Bapcor is ready to re-establish itself as the reliable wealth creator it has been since IPO. Analysts have done their best to highlight the company's virtues and strong growth outlook over the months past.

The latest to update are analysts at Macquarie. Their report is littered with predictions of "further margin upside", alongside characterics of "defensive growth profile" and "superior growth outlook". This is why Macquarie's price target sits at $6.60, well above the current share price. Macquarie is not the high marker for Bapcor price targets. See Stock Analysis on the website.


One consumer facing stock that is attracting a lot more attention these days is Retail Food Group ((RFG)), once upon a time highly successful with its various food related franchises, but things have changed for the worse, and rapidly too. Investigative journalism at Fairfax media has been followed up with quite severe profit warnings, and the share price has responded in accordance.

Of course, the share market has a habit of selling down out-of-favour stocks too far and thus Retail Food Group will be on many a value seeker's radar by now. Yet, I am giving it away straight up, I have no appetite for the stock. I see a company in serious trouble, and suspect there could be a lot more bad news lurking around the corner.

One of the few that still actively covers the stock, Wilsons, seems to agree. In its latest update on the company, Wilsons points out there is not much room for further downgrades as the company is already trading near its debt covenants; yet another hit to the bottom line will most likely trigger a heavily dilutive equity raising. I'd say: buyer beware.

Wilsons also points out weakness in franchise transactions is currently prevalent and there is no visibility about where profits are heading in the short to medium term; nor when profits might stop falling. Just to be safe, Wilsons forecasts now assume negative growth for the three years ahead. No surprise thus, the rating remains on Sell, with the share price target falling to $1.64.

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