Coles Group Ltd (ASX: COL) shares have delivered the goods for investors in 2024.
Since the start of the year, the supermarket giant's shares have recorded a gain of almost 17%.
And that doesn't include the dividends the company has paid out to shareholders over the period.
But those returns have been and gone now. What could happen if I invested $5,000 into Coles shares now? Could I get a good return on investment? Let's see what analysts at Bell Potter are saying.
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Investing $5,000 into Coles shares
At present, the Coles share price is fetching $18.90. This means that with a $5,000 investment (and a further $8.50 for good measure), I would receive 265 units.
According to a recent note out of Bell Potter, its analysts believe those shares could rise nicely from current levels.
They have put a buy rating and $20.50 price target on them, which implies potential upside of approximately 8.5% over the next 12 months.
If this were to happen, it would give my 265 shares a market value of $5,432.50.
In addition, Bell Potter is forecasting a fully franked dividend of 68 cents per share in FY 2025. If accurate, my shares would generate dividend income of $180.20.
This brings the total return to $604.20 from a $5,000 (and $8.50) investment in Coles shares.
Why is Bell Potter bullish?
Commenting on its buy recommendation, Bell Potter said:
We see FY25e as a year of consolidation on a reported basis, however, we continue to see COL as providing an attractive earnings growth profile through to FY27e on an underlying basis driven by: (1) delivering $1Bn in cumulative savings by FY27e through Simplify & Save ($238m of which was delivered in FY24) (2) Sustained benefit of lower loss rates (+44bp margin tailwind YOY in 2H24); (3) Delivering targeted returns on a ~$1.45Bn capital investment program in ADC's and CFC's; and (4) Expansion of the store network at a pace consistent with population growth.
As for its valuation, Bell Potter explained how he came up with its price target. The broker said:
In determining our $20.50ps target price we have considered a sum of the parts and ROIC model. Major features of these approaches are: (1) Sum of the parts ($20.30ps): We have incorporated multiple of 9.0x EBITDA for Supermarkets and 8.5x EBITDA for the liquor business, modest discounts to its peers; and (2) ROIC based approach ($22.90ps): Which is predicated on a WACC of 8.0%, deriving an implied EV/EBITDA is 9.3-9.5x FY25- 26e. FY25e EBITDA & EBIT exclude $130m in effectively non-recurring costs linked to the ADC/CFC implementation costs and $35m in Fy25e provisions.
