Federal Budget to buoy supermarket spend: Citi

The Federal Budget was headlined by several initiatives delivering cost of living relief for Australians and supporting small businesses.

The key measures for households include: 

• Fuel excise lowered by 50% from 44.2c per litre to 22.1c per litre for 6 months

  • Treasurer Josh Frydenberg said a family with two cars who fill up once a week could save around $30pw

• One-off, tax-exempt payment of $250 for all pensioners, welfare recipients, veterans and eligible concession card holders in April

• One-off $420 cost of living tax offset

  • Low and middle income tax offset up to $1,500 for a single income household 

Citi has run the ruler for the Federal Budget and expects the policies to provide a circa $8bn boost to household disposable income between FY22-23. 

The investment bank believes these stocks and sectors could benefit. 

Supermarkets

Citi believes supermarkets are among the biggest winners of the incoming budget measures, enabling consumers to absorb higher food prices.

Citi maintained a Buy rating for Coles (ASX: COL) with a $19.30 target price.

A Buy rating was also maintained for Woolworths (ASX: WOW) with a $37.08 target price.

Interestingly, the Australian Bureau of Statistics released February retail trade data on Tuesday. Overall retail turnover rose 1.8% on-the-month and up 9.1% compared to last year.

Food retailing, which includes supermarkets, was the worst performing segment, down -2.6% compared to last month.

Discretionary retailers

Citi was less certain about the how discretionary retailers are positioned for the cost of living relief measures.

The investment bank said that discretionary segments could benefit if consumers allocate a portion of benefits to non-essential items.

Citi was Buy rated on Harvey Norman (ASX: HVN) with a $5.61 target price.

Although less optimistic and Neutral rated for JB Hi-Fi (ASX: JBH) and Wesfarmers (ASX: WES), with a $57.65 and $54.10 target price respectively.

Discretionary spending segments were among the top rises in February's retail sales data.

“Most discretionary spending industries experienced strong rises once again as consumer cautiousness lessened, leading to an increase in mobility and improved business conditions," said Ben James, Director of Quarterly Economy Wide Statistics.

Clothing, footwear and personal accessory retailing and department store segments rose 11.2% and 11.1% on-the-month respectively.