In Brief: Retail Slips, Rigs Retire, Wesfarmers Expands

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Wesfarmers eyes auto retail, Cleanaway and Qube chase offshore gains, while Aussie consumer confidence dips ahead of the 2025 election.

–Oil rig cleanup opens $16bn door for logistics & waste giants
-Spending slows, Aussies pull back ahead of an election
-Bunnings drives into auto, rivals brace for impact

By Danielle Ecuyer

The quote of the week comes from the Wall Street Journal:

“The president is a true mercantilist and just isn’t going to believe forecasts about how bad this can get,” said Michael Strain, head of economic-policy studies at the right-leaning American Enterprise Institute. “He needs to put his hand to the hot stove and leave it there until he can’t bear it. The question is how long will that take?”

Take out the rigs and the trash

Decommissioning of offshore oil and gas infrastructure in Australia is following in the clean-up of the UK’s North Sea, analysts at E&P determined this week as the assets have come to the end of their useful life.

Australia’s offshore decommissioning, primarily in Bass Strait and off the coast of WA, is estimated to represent around 5,695t of material according to CODA, the Centre of Decommissioning Australia, which will need to be disposed of. Compared to the domestic construction industry’s construction waste of around 25,100t per annum, the total tonnage is small but the challenge stands around the location and impact on nature.

CODA estimates the combined liability at US$40.5bn including wells and facilities, with the work expected to take place over 35 to 50 years using current platform infrastructure. Most will be completed by 2060 and some ending by 2075.

Western Australia represents around 89% of the projects and Victoria circa 11%.

Turning to which companies may benefit, E&P suggests around 25% of the value is likely to be onshore work such as onshore dismantling and waste disposal/recycling.

Enter Qube Holdings ((QUB)) as one of Australia’s largest logistics companies with over 1,000 rig supply vehicles, barges and offshore construction vessels, and Cleanaway Waste Management ((CWY)), one of the largest waste management companies.

The recent acquisition of Contract Resources, which operates in decommissioning, decontamination and remediation, offers a pathway for Cleanaway into the sector beyond the traditional end of the disposal value chain.

A potential total available market of around $16bn over a 35-year period or circa 25% of the total decommissioning market is up for grabs. Management has already announced it is targeting around $650m per annum over the next ten years from this type of work.

The potential opportunities for Qube at this stage are less clear. Although the point is made management at Qube has more optionality from the company either developing or acquiring additional capabilities to partake in the potential work on offer beyond the likes of its essential port infrastructure such as Barry Beach, which will most likely receive the decommissioned waste.

E&P has a positive rating on both companies with a valuation of $3.20 for Cleanaway and $4.35 for Qube. A positive rating signals the stock is expected to outperform the S&P/ASX200 over the coming 24 months.

FNArena daily monitored brokers of those who have commented were recently upbeat on Cleanaway’s takeover of Contract Resources, with Morgans upgrading the stock to Buy-equivalent from Hold with a $2.95 target.
Consensus target price sits at $3.13 with five Buy-equivalent ratings and one Hold rating.

FNArena’s consensus target price for Qube sits at $4.295 with two Buy-equivalent ratings and two Hold-equivalents.

Consumers pulling on a string

US consumer confidence has tipped into a four-year low, having fallen for a fourth consecutive month. Experts continue to ascribe a low level of probability to a US recession, but there are no doubts the DOGE cuts and disruption, alongside the tariff uncertainty, is weighing on Americans mood.

Australians are not immune from the glaring headlines and media barrage from the US President.

Anecdotally, a jeweller informed me demand for quality gemstones is noticeably on the rise. Might not have any meaning, or could it be people are using perceived safe havens to store their wealth as global question marks rise around the new world order the Trump Administration is seeking to establish?

As highlighted by Jarden in the latest update on the outlook for Australian retailers, the Roy-Morgan Australian Consumer Confidence survey rose slightly by 0.4 points last week to 84.2 points, but on a four-week moving average basis, the series declined to the lowest level since October 2024. Households are feeling less confident in their financial and economic conditions.

While the February rate cut provided a fillip to sentiment, spending trends have since been slowing, notably across hospitality, recreation, travel and food.

Jarden sees a “wobbly'” outlook for the domestic consumer in the run-up to the May Federal election and thus growing risks around earnings for discretionary retailers in the 2H25 results.

A combination of political uncertainty, a lower Australian dollar with inflationary implications, geopolitical tensions and the impact of Easter and Anzac falling in the same week, makes for a messy backdrop.

Historically, non-food consumer spending moderates into elections as well as Easter and Anzac Day. Inflationary pressures could emerge from a lower AUD, leading to imported goods price rises. Electronic retailers have announced 5-15% price increases this year.

On balance, Jarden views the consumer is in “good shape,” but more confidence is needed to draw upon an expanding savings pool, which is unlikely to transpire until further RBA rate cuts or geo-political turbulence subsides.

In terms of stocks, Woolworths Group ((WOW)) is preferred with a Buy-equivalent rating and a $37 target price. In household goods, Harvey Norman ((HVN)) and Temple & Webster ((TPW)) are the top picks, with Universal Stores ((UNI)) favoured for exposure to the youth market.

Coming out of an election, clothing, eating out and quick service restaurants (QSR) typically perform post-election.

Based on history, post-election may see higher spending for hospitality such as Endeavour Group ((EDV)), Hold-equivalent rated, target price $4.30 and QSR with a Buy-equivalent rating on Domino’s Pizza Enterprises ((DMP)), target $39, and Collins Foods ((CKF)).

Recreation and travel should also do better. Flight Centre Travel Group ((FLT)) and Webjet Group ((WJL)) are both Buy-equivalent rated with target prices of $22.50 and $1.20, respectively.

Consumer staples, Coles Group ((COL)) and Woolworths, as mentioned, should benefit, and there are risks for department stores and hardware. Wesfarmers ((WES)) is Sell-equivalent rated with a $67.50 target price.

The last time Easter and Anzac Day were separated by three days was in 2019, and historically, travel stocks could benefit the most, followed by liquor and pubs and department stores. In contrast, household spending for goods, groceries and pharma/beauty may be more subdued.

Citi overlays the 2025-2026 Federal budget, which should offer around a $3.7bn boost to household disposable income in FY26 from energy bill relief and lowering the Medicare levy threshold, with changes to bulk billing and PBS listings.

The new income tax announcements will not be implemented until FY27, with the full benefit in FY28. Overall, the broker states the fiscal policy will be basically “neutral” for household budgets over FY26-FY28.

Wesfarmers flexes some automotive muscle

Regarding discretionary retailers, Citi peeked into Wesfarmers’ move into the auto retail category and the possible impacts on Bapcor ((BAP)) and Super Retail Group ((SUL)).

The broker concluded post a visit to Bunnings Preston (VIC) the company had successfully secured some major brands with competitive pricing. The products on offer were more non-discretionary in nature, which could affect customer traffic for Super Retail and Bapcor’s Autobarn.

While any impacts are hard to gauge at this stage (Bunnings positioned the auto products at the back of the store), Citi proposes Bapcor should be able to somewhat offset any impact by internal measures such as better store networks and improved promotions funded by suppliers.

The stock is Hold-equivalent rated with a $5.64 target price.

For Super Retail, the impact is anticipated to be less severe than what has transpired in Pets and Cleaning products, in part due to the absence of overlap between the products offered in-house and those at Bunnings. Super Retail is Buy rated with an $18 target.

Citi is seeking more details from the Bunnings Investor Day on the auto retail strategy. Wesfarmers has a $61 target price and is Sell rated.

Goldman Sachs analysts were quick off the mark to update their thoughts on the Bunnings investor day, emphasising they came away positive that the group will be able to continue to generate growth, which aligns with the Buy rating on the stock.

Market share gains via category delivery and range management should result in sales growth and higher gross profit productivity. Bunnings management pointed to opportunities to achieve double-digit growth in sales/sqm, with US peers at higher rates. Opportunities across eight new categories Pets, Auto, Smart Home, and Cleaning were noted.

Bunnings is also expanding into new categories via range and value differentiation as well as pushing into commercial.

Goldman Sachs has a target price on Wesfarmers of $80.40.

FNArena consensus target price sits at $70.292, with three Hold ratings and three Sell-equivalent ratings for the daily monitored brokers.

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