WOW - Woolworths Group

[nulla nulla]

Woolworths went ex-div today and dropped $0.64. I half expected it to drop by arround $0.80 allowing for the div and franking credit.



It will be interesting to see whether wow can continue upward and sideways from here or whether the recent improvement was only due to investors buying in for the div.

 

[nulla nulla]

Stellar performance by Woolworths this month. $24.95 on 6 March then ran up to $25.67 before going ex-div fully franked at $0.59. Fell back to $24.77 after going exdiv (div and franking) then rallied through the last week to tap $26.10 before closing out the month at $25.98.



A quick return of over 6% in 22 days for anyone trading the Div, Franking credit and Capital Gain. It will be interesting to see whether wow drifts down in the recent channel or breaks out above $26.10 in the next few weeks.

 

[tinhat]

A quick return of over 6% in 22 days for anyone trading the Div, Franking credit and Capital Gain.

Except that you can't claim a franking credit on a stock you only hold for 22 days.

 

[Chasero]

Except that you can't claim a franking credit on a stock you only hold for 22 days.

how come?

 

[McLovin]

how come?

45 day rule. Iirc, the shares also have to be at risk for the full period. That second point is often overlooked.

 

[nulla nulla]

Except that you can't claim a franking credit on a stock you only hold for 22 days.

Yes I can. If the total of all franking credits is less than $5,000 in a given fiscal year, the 45 day rule does not apply. This comes in very handy with jointly held shares as the threshold becomes less than $10,000 in franking credits, the income is split and the individual benefit is less than $5,000 each.

Additionaly, when the total of all the franking credits is more than $5,000 the 45 day rule is 45 days clear between the buy date and the sell date, effectively 47 days.

 

[tinhat]

Yes I can. If the total of all franking credits is less than $5,000 in a given fiscal year, the 45 day rule does not apply.

I didn't know this. I will seek to confirm this (not that I don't trust anonymous people from the internet). If that is so, then the franking credits from my personal portfolio would be under this threshold. How does the threshold apply to a SMSF with several members but pooled funds?

 

[blue0810]

Just in case some info (page 7):
http://www.ato.gov.au/content/downloads/IND00270245N26320611.pdf

 

[nulla nulla]

..... How does the threshold apply to a SMSF with several members but pooled funds?

Where the total franking credits for all the smsf members combined is less than $5,000.00, the 45 day rule does not apply. Where the total franking credits for all the smsf members combined is greater than $5,000.00 the 45 day rule applies as the smsf is taxed as a single entity (only one tax return filed).

 

[tinhat]

Where the total franking credits for all the smsf members combined is less than $5,000.00, the 45 day rule does not apply. Where the total franking credits for all the smsf members combined is greater than $5,000.00 the 45 day rule applies as the smsf is taxed as a single entity (only one tax return filed).

Thanks for the reply.

 

[notting]

Finding it hard to comprehend why WOW would quote some uncertainty going forward on the basis of the impact of the carbon tax as one of the uncertain factors!!
Surely they don't really believe that!
Has the great management lost it's marbles or just clutching for excuses?

 

[clinta44]

Finding it hard to comprehend why WOW would quote some uncertainty going forward on the basis of the impact of the carbon tax as one of the uncertain factors!! Surely they don't really believe that! Has the great management lost it's marbles or just clutching for excuses?

For those who haven't seen the statement read "we continue to remain cautious about the sales outlook for the fourth quarter, particularly given consumer and business uncertainty about the impact of the carbon tax and interest rates.”"

I read the statement slightly different to you Notting. I thought it ment the business is more worried about whether or not the carbon tax and interest rates will affect consumer spending, rather than the carbon tax directly impacting the business.

But they do list plenty of excuses in that paragraph... The statement could be rewritten in just a few words "sales growth was ok, not sure how next quater will compare, but we are getting hammered with price deflation!"

 

[McLovin]

The reality is that WOW is a good, but not great, company that for many years had no real competition from CML. It was an asymettrical duopoly, WOW had a cost advantage because it had better management. And, they used that advantage to get more traffic through the door with better pricing. That sort of advantage is very easily eroded. They blame deflation, but lets face it, it's not the farmers who are saying we'll sell you milk for cheaper than we can produce it for.

Without tooting my own trumpet, I think this table illustrates how a WES controlled Coles has been able to reduce WOW's profitability.

Something I noticed when I did a bit of research on WOW was the decline in revenue/$ of PP&E.

I guess they're just not getting out of their stores what they used to...

The takeaway being that they will need to make a larger fixed asset investment for each additional $ of spending.

Slightly related, I went to Costco yesterday, I've been to a few in the US, and while the prices aren't as cheap as in the US, they are cheap. I bought a kilo of beef tenderloin for ~$30/kg and it was really nicely marbled, scotch fillet was ~$20/kg. At the big supermarkets that would be about 50% higher and the quality is average. I cut my steak with a butter knife, try doing that with a steak from WOW or Coles!

 

[Ves]

McLovin, I remember reading an article that was discussing that since the GFC, Woolies and Coles both had to build their own premises more so than in days gone past due to the fact that a lot of the larger property developers were having trouble getting the finance to do so.

This would certainly help bring down the rev / pp&e figures.

Obviously Woolies are also in a similar position to JBH in that they have pretty much saturated the most profitable areas. With increased competition from Coles the figures can only come down (revert to the mean).

 

[McLovin]

That's true, but even with development properties taken out, they are still earning 15-20% less/$ of PP&E than in 2006. Which is probably better explained by their CAPEX/change in revenue...

4.27, 2.56, 1.52, 1.20, 1.14

And then of course, from a FCF perspective, all that extra WC that has had to be sunk into the business to do the property development in house isn't a great thing either.

Obviously Woolies are also in a similar position to JBH in that they have pretty much saturated the most profitable areas. With increased competition from Coles the figures can only come down (revert to the mean).

Completely agree.

 

[notting]

Great stuff as always Mclovin.
Re carbon tax.
Yeah I hadn't read the statement.
It just jumped out at me from some general commentary. I thought that point may have related to sentiment rather than some kind of weight on consumer wallets but felt there had been enough political/media lampooning already to have braught that seed into life already rather than being some unknown risk coming down the line.
Hence it seemed a little - 'blame the tools' kind of thing.

 

[Ves]

That's true, but even with development properties taken out, they are still earning 15-20% less/$ of PP&E than in 2006. Which is probably better explained by their CAPEX/change in revenue...



And then of course, from a FCF perspective, all that extra WC that has had to be sunk into the business to do the property development in house isn't a great thing either.



Completely agree.

Certainly don't disagree with you! It's a shame, I really like the stock, because it's earnings are fairly predicatable (at least for now...). Up until a few months ago I was keen to snap some up if it got back to $23. But after thinking (and learning), I think anything over $20 is more than I would like to pay. I'd want to be compensated by a much higher earnings yield (and dividend yield) going forward because of the difficulties that they are facing from all angles. In the same boat with JBH as well.

 

[McLovin]

Here's a question worth pondering (and one I don't know the answer to but would be interested in hearing others): What is WOW's customer proposition, ie why am I (or anyone) shopping at WOW instead of Coles? The two are so often lumped together that it's hard to see why one would shop at one over the other, aside from convenience. If it's a true prisoner's dilemma where by co-operating they maximise profitability then logically you would expect WOW's profitability to fall and Coles' to rise. Compare it to the UK, where each of the chains has some proposition (price/quality/brand (M&S)).

Just thinking out loud.

 

[poverty]

Finding it hard to comprehend why WOW would quote some uncertainty going forward on the basis of the impact of the carbon tax as one of the uncertain factors!!
Surely they don't really believe that!

Why not? From the Labor Government's own literature the carbon tax, by design, will lower GDP and raise unemployment. We're already seeing it with Toyota, Alcoa etc. Taking wealth and spending power out of the economy via raising living costs and unemployment to lower carbon emmisions is obviously going to have some effect on discretionary spending. Perhaps not on bread and milk but think liquor, counter meals, pokies, new TVs etc. It's not the end of the world, but there's certainly uncertainty going forward in all facets of the economy right now.

 

[Julia]

Here's a question worth pondering (and one I don't know the answer to but would be interested in hearing others): What is WOW's customer proposition, ie why am I (or anyone) shopping at WOW instead of Coles? The two are so often lumped together that it's hard to see why one would shop at one over the other, aside from convenience.

I'm also interested in this. I shop mainly at Woolworths, despite Coles having a similar range of products, wider less crowded aisles and shorter wait at checkouts.

There's something (for me) really attractive about WOW layout and presentation of fresh foods which somehow my local Coles just misses. Hard to say just what it is other than WOW is always fully stocked with fresh stuff. Coles' displays often look a bit tired and half empty.
Staff are also a bit slow and dopey.