More than a decade after Wesfarmers bought Coles, they are once again separate. In mid-November 2018, Coles split from Wesfarmers, and both began trading as separate entities.
Shareholders received a Coles share for every Wesfarmers share they held.
By the end of the first day’s trading, Wesfarmers’ shares had fallen by $12.26 to $31.96.
Meanwhile, on the same day, Coles shares were trading at $12.75. This was on a day where the rest of the market fell, so shareholders have benefited from the demerger.
Which company would I invest in post the demerger?
Wesfarmers remains a high-quality business in its own right with good growth potential, however it appears fully valued.
There is definitely room for improvement in Coles market-share and the next few years could see a management led drive for earnings growth that will catch some of Woolworths market share and might bring some share price improvements as well as an estimated 4.7% Dividend Yield.
The Coles brand is comprised of Coles Supermarkets, Liquor Land, First Choice Liquor and Coles Express (the service station and convenience store). Today, Coles has 31% of the grocery market compared to Woolworths’ 38%.
Woolworths’ currently boasts a larger and more efficient supply logistics chain and held a greater profit margin due to its larger fresh food offering.
Some plans already in the pipeline for Coles include a capital spend on two new automated distribution centres this will start to shorten the gap between Coles and Woolworths.
Coles will be worth keeping an eye on in the next few years as there is definite growth potential and likely a reinvigorated management.