Will Coles Become a Bank?

A few years ago, the big diversified Australian Wesfarmers (WES), owner of Coles supermarkets, put a rubber stamp on plans for Coles to expand into finance, and this saw the release of credit cards and insurance products under the Coles brand. Now Coles plans to take their foray into finance to a whole different level by offering personal loans. But some shareholders wonder whether Coles ae ready to take on the big four banks.

Firstly, if you haven’t seen big institutional investors talking down the plan then you know there is support for it. Also, WES is a successful top 20 company by market capitalization on the Australian exchange, paying fully franked dividends to shareholders and therefore Coles has substantial financial backing from its parent company. Secondly, Coles has a track record in using its brand to leverage into new markets. Remember how Coles broke into the fuel market and now you see fuel stations displaying the Coles brand on many street corners.

Further, Coles are not venturing into lending alone, they have partnered with financial heavy-weight GE Capital who will split the costs which mitigates some risk. The goal is to build a lending book worth $800m in the first year, in 2015. Coles, with a huge loyal customer base, has everything it needs to market new products successfully. However, to take a meaningful bite of the Australian finance pie, Coles will need to convince customers that it is a serious player and this is going to take time, and you can be certain that the four major Australian banks will be watching their every move.

So what do we expect in the market?

On Wednesday this week the market continued to trade higher, stopping just short of the lower band of my target of 5600 points. It is important for shareholders to remember that this is reporting season and at the moment the market is running on financial news. US company earnings have been positive which has had flow on effects for our market, and now we have many reports coming out from big Australian companies like BHP that are helping to drive the market higher. That said, the mood softened a little on Thursday and instead of the run continuing the All Ordinaries Index hovered around Wednesday’s close. I believe we will soon see our market break the 5600 level and continue towards the upper band of the target zone. Confirmation of the next move will prompt a revision of the upper target level.

chart image of all ordinaries index from 25-07-14

To your profitable trading,

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’. Dale has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment adviceto traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma of Share Trading and Investment.