Coles has announced the sale of its Fuel & Convenience business to Viva Energy. The company emphasises its desire to focus on its “omni-channel” supermarkets and liquor businesses, as well as become Australia’s most “sustainable” supermarket. The deal is mildly EPS accretive and a decent price for Coles. On our estimates the sale price is 12x EV/EBIT (FY23e) and 0.6% EPS accretive in FY24e. We do see some downside risks over time as Coles may lose the grocery wholesaling business and the cost of fuel discounts may rise.

Higher petrol, coal and gas prices are a growing risk for retail, food and beverage companies. The magnitude of earnings downside would be in the order of 5%-10% if the higher prices continue for a full 12 months. We see near-term risk around transport costs for food retailers. For consumers, higher petrol prices may take away up to 0.7% from consumer spending. It’s equivalent to a 60bp interest rate increase. However, the price increase is still within the scope for households to absorb by lowering their savings rate rather than lowering spending.