WOW - Woolworths Group

[poverty]

Bought 425 @ 26.52 today, gambling with my new margin loan. My first ever stock purchase not thru employee SPP etc.

 

[ROE]

If this did occur, to me that seems to be a 3-5 year return (dividends + reinvestment + capital gain) of 9-13%. Given the solid nature of WOW what do others think about that sort of return?

Couple of things I don't know how well WOW will perform in the next 3-5 years....

The share buyback I don't think it is good capital management given it doesn't have the money to do it...offload property and take on debt to cover for buy back.

WES wont let WOW takes its customers in hardware so a price war is likely to happen as soon as WOW open the first shop.

I am no bunnings lover I reckon their price is a ripped off, they are convenient but price wise they aren't cheap....I welcome WOW enter the market to keep the bastard honest but a price war wont do good for
any of them lower return on for both of them...

High debt house hold and hi-fi deflation probably slow down any excessive spending on grogs, and entertainment stuff....

with so much uncertainty I like a big margin of safety for WOW
maybe around $20 I maybe tempted but else I keep money in the banks
earning 5% ...

WOW is a market darling so I doubt I can get at that price but I cant get the price I want I just don't get

I also has another stock I like a lot and if the market jig WOW down that path and this same stock fall by the same margin I buy this other stock over WOW because I prefer business where they can name their price and customers just pay up and I am one of them...

 

[ROE]

Bought 425 @ 26.52 today, gambling with my new margin loan. My first ever stock purchase not thru employee SPP etc.

Don't you get employee discount , most place I work offer like 5%-10%
discount for staff purchase with limitation of course.

I think you invest in a solid business but for me price is everything
don't care how good you are if price isn't right I wont buy.

 

[poverty]

Don't you get employee discount , most place I work offer like 5%-10%
discount for staff purchase with limitation of course.

The only thing going is the ability to salary sacrifice $1000 a year to the SPP to buy shares, so there's no discount but I do save 30c in the dollar of tax, but it's small potatoes.

 

[nulla nulla]

It took 13 trading days to climb from the low of $26.06 to $27.20 and only 5 trading days to give it all back.
The xmas retails sales are suspected to have been disasterous, the sales report is due soon and it is not going to be pretty. I expect wow to test the lows of $25.00 (and lower) before there is any kind of bounce linked to the AGM and dividend announcement.
All this talk about retail sales sufferring due to savy customers buying online isn't helping either, even if it is only a drop in the bucket.

 

[jonojpsg]

Well I figured the drop's a bit overdone for WOW - retail sales as such (discretionary)make up a minor part of their sales compared to the staples (food, alcohol (hehe), etc.) although I guess any drop in that part is unlikely to be made up for by the staples side of things so will end up as an overall drop in sales growth so SP will suffer.

I bought in @ $26.25 hoping for a quick bounce back to mid-high 26s so will see how that goes...

 

[Boggo]

I expect wow to test the lows of $25.00 (and lower) before there is any kind of bounce linked to the AGM and dividend announcement.

This EW projection would tend to agree with that statement.

(click to expand)

 

[Tyler Durden]

Lowered forecast earnings. Drop today probably reflected that, but wondering if it'll continue to drop over the next few days?

 

[jzell67]

Here's hoping it does. For me anyway...

Beginner trying to buy in and the price atm is unacceptable...

 

[nulla nulla]

Since my post of 8 January 2011, wow has bounced from $26.20 up to $28.20 then retraced again. Totally unexpected early bounce today after all the hype of low xmas sales. Mind you it could be a dead cat bounce.

Having reached $28.20 it appears to have retraced on release of the profit downgrade for the current fiscal year and what lies ahead. The bounce today (slightl) could be attributable to the record profit (?).

The report summarises as "Strewth, things are tough, they are going to get tougher, but by the way we made a record profit". Must be bonus time for the executives.

 

[Tysonboss1]

I thought the followers of Woolworths might get a kick out of this Vid.

 

[Julia]

That's all very fine, tyson. Yes, WOW is a successful business.
But it's SP is essentially flat. $34 just before the GFC and now a miserable $26.50 or so.
And the yield at 4.5% hardly makes up for the lack of capital appreciation.

So I don't see the point in 'owning a magnificent business' if you're not making decent money out of it.

 

[Tysonboss1]

That's all very fine, tyson. Yes, WOW is a successful business.
But it's SP is essentially flat. $34 just before the GFC and now a miserable $26.50 or so.
And the yield at 4.5% hardly makes up for the lack of capital appreciation.

So I don't see the point in 'owning a magnificent business' if you're not making decent money out of it.

Thats right, As you can see from the video when it was trading at $34 it was actually worth much less probally around $20.

Rogers Value for it in 2010 is around $26 so it is sitting on or slightly above it's intrinsic value.

I can't see how your saying there has been a lack of capital gain, I remember WOW being $4 around 1999 - 2000 it's now >$26.

the goal of value investing is to identify Great businesses, then indentify the true underlying value of the business, and then as the price fluctuates over time above and below this value you buy it when it is below.

When you pointed out the the WOW share price has gone no where in relation to the high pre GFC of $34, you are infact pointing out the core principle of value investing and that is longterm stocks will trade back to their intrinsic value.

I don't own WOW, have not owned them since 2001

 

[nulla nulla]

Dropping to an interday low of $26.24, wow has crept back up to the $26.50 - $26.60 range and held it for the last few days. Due to announce it's div on Monday 21/02/11, it would not surprise me to see the price run up before it goes exdiv, like it did last year.
Seems to have a pattern of rebounds between reporting and going exdiv, then crashing after going exdiv (Dividend strippers perhaps?).

 

[poverty]

Dropping to an interday low of $26.24, wow has crept back up to the $26.50 - $26.60 range and held it for the last few days. Due to announce it's div on Monday 21/02/11, it would not surprise me to see the price run up before it goes exdiv, like it did last year.
Seems to have a pattern of rebounds between reporting and going exdiv, then crashing after going exdiv (Dividend strippers perhaps?).

Yeah I'm looking to hold for the pre-div price run-up, but not sure about whether to just sell before ex-div or take the div and sell on the open the next day. Maybe I'll do half and half.

 

[Noddy]

For whatever it's worth, RM's latest valuation for WOW is $23.69.
Can check out his latest calculations on his Blog site.
He thinks you need to buy it below this price, the lower the better.

 

[nulla nulla]

Another buying opportunity yesterday, shortly after open, when the share traded arround $26.30 before working it's way up to $26.95 to close on $26.85.
Response to the Report released seems fairly muted. The press release summary shows continued growth, reduction in costs, increased profits, increased earnings per share and increased dividends per share.



Page 20-21 of the press release shows the continued improvement in profit after tax over the past 5 years, yet some analysts consider this to be a soft result. You have to wonder what these people expect. WOW has maintained profitability during the gfc, maintained dividends and is now trading at a lower price earnings ratio than it was in 2007 (before the gfc), yet for some it is not good enough.



I suspect the market will get behind wow in the run up to going exdiv and I wouldn't be surprised to see it go higher after going exdiv. WOW appears to be focused on maintaining and improving market share in the foundation components of "Food, Fuel and Alcohol" and in reducing overheads. Sounds like good principles to running a business to me. As always DYOR.

 

[JTLP]

Another buying opportunity yesterday, shortly after open, when the share traded arround $26.30 before working it's way up to $26.95 to close on $26.85.
Response to the Report released seems fairly muted. The press release summary shows continued growth, reduction in costs, increased profits, increased earnings per share and increased dividends per share.

View attachment 41606

Page 20-21 of the press release shows the continued improvement in profit after tax over the past 5 years, yet some analysts consider this to be a soft result. You have to wonder what these people expect. WOW has maintained profitability during the gfc, maintained dividends and is now trading at a lower price earnings ratio than it was in 2007 (before the gfc), yet for some it is not good enough.

View attachment 41607

I suspect the market will get behind wow in the run up to going exdiv and I wouldn't be surprised to see it go higher after going exdiv. WOW appears to be focused on maintaining and improving market share in the foundation components of "Food, Fuel and Alcohol" and in reducing overheads. Sounds like good principles to running a business to me. As always DYOR.

Hi Nulla Nulla,

As somebody in the industry - I can tell you now that the muted response to WOW's report is justified - both on an indirect level (floods etc) and direct level (competition).

Things are really heating up in the market place. Coles have lagged WOW for so long that their new strategy is to just bust bust bust suppliers for the lowest prices and drag consumers into their doors - no matter what the cost. If you look in any major category in the supermarket (say washing powder) you will see some very heavy discounts across the board - and not just on 1 or 2 brands.

Retailers do receive benefits for running these specials (they usually calculate part of the difference between the special and give it back to WOW) but this constant price warring won't help sales and the bottom line. 50% off running through catalogs weekly isn't sustainable - and with a new model Coles is moving to (PM if you want further info) sales will start to suffer as a result.

Just my

 

[snowking]

50% off running through catalogs weekly isn't sustainable - and with a new model Coles is moving to (PM if you want further info) sales will start to suffer as a result.

Just my

Coles sales, Woolworths or both?

 

[nulla nulla]

Hi Nulla Nulla,

As somebody in the industry - I can tell you now that the muted response to WOW's report is justified - both on an indirect level (floods etc) and direct level (competition).

Things are really heating up in the market place. Coles have lagged WOW for so long that their new strategy is to just bust bust bust suppliers for the lowest prices and drag consumers into their doors - no matter what the cost. If you look in any major category in the supermarket (say washing powder) you will see some very heavy discounts across the board - and not just on 1 or 2 brands.

Retailers do receive benefits for running these specials (they usually calculate part of the difference between the special and give it back to WOW) but this constant price warring won't help sales and the bottom line. 50% off running through catalogs weekly isn't sustainable - and with a new model Coles is moving to (PM if you want further info) sales will start to suffer as a result.

Just my

For what it is worth and without trolling for an argument, I see Woolworths from the following perspective.

Woolworths has assets but the net tangible asset backing per share is very low as most of their locations are leased. The leases are very favorable as shopping centres like having cornerstone tenants that bring large numbers of customers in.

Woolworths also works it’s suppliers:
In the fruit & veg industry they cut out the middle man and buy direct from the farmers. They have a reputation for pushing prices down and insisting that the quality of the product meets a high standard of quality and presentation.

In the meat sector they also buy product direct from the farmers and run the product through the abattoirs as a negotiated job lot (if they don’t already own the abattoirs).

In respect of Alcohol, they own Hotels and Wine Shops, Dan Murphy’s, BWS, Langtons and now Cellermaster (mail order & online) and Wine Market (on line). Once again they buy in bulk and push the prices down.

In respect of Groceries, they push supplier prices down, charge for shelf space, probably insist on and charge for regular promoted discounts and have charge back deals for items that move too slowly and/or discontinued lines.

In respect of fuel they own most of the previous caltex outlets and no doubt have stitched up a lucrative supply deal with Caltex.

The point is they the supply across Australia on an incredibly large scale on a competitive basis. The report just out shows that they were able to offset tightening consumer spending over the last year by cost cutting and still post an increase in profit by 6%.

As to competition, they have proven that they are able to meet head on and survive challenges from:

Coles;
Aldi;
Metcash/IGA;
Franklins; and
Davids (Cambells Cash & Carry) (Gone?)

Costco’s is coming, so what. Costco’s is already in Melbourne and the feedback is that the prices are no better than the big chains “specials”. And the advantage of buying from Woolworths/Coles versus Costco is you don’t have to buy in bulk on the day and have massive storage space at home to store your groceries.

My previous posts in respect of Woolworths are relative to the regular trading opportunities that arise in the period between reporting and going exdiv. Even if you were a passive investor rather than a swing trader, Woolworths is still a standout with the franked annual div and a price that is only slightly higher than the low it hit at the bottom of the GFC. The market is driven by sentiment and at the moment Woolworths is not the market darling. But the market is fickle and Woolworths will be seen as an attractive opportunity again, one day. . For now, trade the swings and lock in your profits.

As always Do Your Own Research.