WOW - Woolworths Group

[tinhat]

Don't know on which website I read it last night, but I read that this earnings accretive acquisition of $350 million for Cellermasters is for a business that generates revenue of $35 million p.a. I don't know what the profit margin is, but I can only assume that Woolies are looking for substantial synergies, improvements to buying power, etc., to justify that purchase price. Anyone have more info or opinion on this acquisition? It's got to get past the ACCC yet too.

 

[nulla nulla]

Inside Business (ABC 24) 5:30pm 27-02-2011. Woolworth GM. Solid and obviously planning ahead. Not about to roll over to any misplaced sentiment.

 

[McCoy Pauley]

Inside Business (ABC 24) 5:30pm 27-02-2011. Woolworth GM. Solid and obviously planning ahead. Not about to roll over to any misplaced sentiment.

Luscombe dodged some fairly direct questions from Kohler about his own plans in the next 12 months though.

 

[nulla nulla]

I thought he made it clear he was enjoying what he does and had no plans to change. It also appeared that he was not prepared to speculate on the prospect of any succession planning by James Strong and the rest of the board.

Personally I think that his performance, in what is a difficult period in retail, has been very good. If the board did decide that it was time to put someone "fresh" at the helm, they would do well to offer Luscombe a seat on the board. Be a shame to lose access to that level of experience and ability.

 

[oldblue]

Can't agree with that, nulla nulla.

Not a good idea to have a new CEO being second guessed by having his predecessor on the board!

I've no opinion on M Luscombe's effectiveness but if he's that good, keep him in his current job.

 

[poverty]

Got out this morning at 26.95 to top up on AUT. Not regretting it so far!

 

[JTLP]

Coles sales, Woolworths or both?

Personally I think both will be lower but Coles don't really care - they are all about gaining market share and foot traffic - that's why they will continually run these 'loss leaders' to drag feet through the door. Interestingly - supermarket loyalty is quite high.

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.

Nulla I had a nice big comment but unfortunately accidently exited.

I have long admired your trading and commentary - so thank you

To get back to the thread:

1. There is only so much cost cutting WOW can do to help bump the bottom line. Latest things such as the floods and NZ earthquakes won't help (but won't be a massive impact).

2. As mentioned before - Coles have a new plan that will be very effective in squeezing money from suppliers and bringing traffic through the door. I think it is due to come to fruition in April but things will be very cheap for consumers.

Don't get me wrong - I would love to own one of the 2 someday. The big 2 supermarket chains get around 80c per dollar. That's pretty good odds.

Sorry about this shallow reply - I'm a bit annoyed about losing the original post!

 

[nulla nulla]

Closing on $27.38, a high for this week, wow has continued to gain ground after hitting recent lows of $26.27. Swing traders getting in at the nadir arround $26.30 are now $1.08 in front. There is still two weeks to go before the share goes exdiv and (in my opinion) there is a good likelihood that the dividend strippers will push the price up further. DYOR.

 

[nulla nulla]

Well I got that wrong. The finance fellow defected to Fosters and Japan had an earthquake, sunami and is now in the middle of an escalating nuclear meltdown.

Must get a new crystal ball. I'm holding for the dividend and will hold for the required number of days to capitalise on the franking credit. I may have to hold a little bit longer for my trade profit but sometimes it is like playing a waiting game.

I expect wow to drop when it goes exdiv on Monday by the div and a franking credit component. It will be interesting to see if any margin loan holders get flushed out and push it lower. DYOR

 

[VSntchr]

.... and will hold for the required number of days to capitalise on the franking credit.

Sorry, bit of a nooby with regards to tax...do you have to hold beyond the ex date in order to acquire the franking credits?

 

[So_Cynical]

Sorry, bit of a nooby with regards to tax...do you have to hold beyond the ex date in order to acquire the franking credits?

If you received the dividend then you also get the franking credits.

 

[YELNATS]

If you received the dividend then you also get the franking credits.

Also be aware of the 45 day rule.

http://www.ato.gov.au/businesses/content.asp?doc=/content/18898.htm

 

[skc]

Also be aware of the 45 day rule.

http://www.ato.gov.au/businesses/content.asp?doc=/content/18898.htm

45-day rule only applies if you claiming >$5K worth of franking credits.

Well I got that wrong. The finance fellow defected to Fosters and Japan had an earthquake, sunami and is now in the middle of an escalating nuclear meltdown.

Must get a new crystal ball. I'm holding for the dividend and will hold for the required number of days to capitalise on the franking credit. I may have to hold a little bit longer for my trade profit but sometimes it is like playing a waiting game.

I expect wow to drop when it goes exdiv on Monday by the div and a franking credit component. It will be interesting to see if any margin loan holders get flushed out and push it lower. DYOR

The dividend drop off will definitely see the share price fall below the critical support level (where it is now). It's a head-and-shoulders pattern that has a target ~$24.2. Would not surprise me one bit if that is reached next month based on both technical and fundamental analysis (my post 194 on this thread).

 

[nulla nulla]

At the peak of the GFC Woolworths touched a low of $22.85. Since then the lowest price has been in the low $24.00's but the highest price has been $30.57. The share price has pretty much moved sideways in a converging channel (chart attached is for 30 months).

I can't see the basis for the price to be so low. Woolworths continues to post increasing profits etc, however the market is driven by sentiment. Woolworths has been out of favour for a while and on top of going ex div, we have a nuclear disaster in Japan.

No idea where it will go from here. However, it should be remembered that the bulk of woolworths income is derived from food, alcohol and fuel. These things never go out of demand. I hold shares in wow, so do your own research.

 

[fanger]

45-day rule only applies if you claiming >$5K worth of franking credits.

I didn't know that, I thought it was a general rule to apply to all trades regardless.

 

[noirua]

It's a bit of a game in the Woolworth sector and the UK is at present in a concerted trade war.
ASDA (part of WalMart) have laid down the gauntlet to their major rivals Tescos, Morrisons, Waitrose and Sainsburys.
ASDA have said that they are 10% cheaper on all prducts (not including cigarrettes and tobacco) so you can go online and present your details and if ASDA are not 10% cheaper than all of the rest, then you can download a voucher to take off the cost of your next purchase.
Since the rise of the AUD against the GBP, food prices have become very expensive in Australia in GBP terms and I think, emailing back home to WA, that something should be done about prices of food in Australia. Far to damn expensive - someones having a big joke against the average Aussie.
Wake up Coles and Woolworth, chop those prices by about 30%.

 

[skc]

Observe the war between Coles and Woolies and you see how WOW is on the defensive and reactionary position.

WOW has had to follow Coles in everything... cheaper milk, bring out Margret Fulton, and even similar ads and slogans.

Coles says 'Down Down Prices are Down' with big foam hand pointing down.

WOW comes out with 'Knock down prices' with big green boxing gloves.

They are under-cutting each other on price and that will hurt margin a fair bit over time. Since I don't hold either company I benefit from the cheap milk but not the destruction of shareholder value.

Look at SIP and API, the duopoly in wholesale drug distribution, and see how they ruined each other and the industry...(their share price charts tell the story).

At some point cooler heads will prevail. But I think the market is now pricing WOW at less of a premium to its peers because of this. (MTS is the most directly comparable peer imo).

 

[snowking]

the share price is actually holding up fairly well imo. dividend of 57cents and franking credit of about 24 cents would, in theory, imply a fall of about 81 cents. Only half that at the moment, maybe the market thinks WOW has been underperforming recently....

 

[skc]

the share price is actually holding up fairly well imo. dividend of 57cents and franking credit of about 24 cents would, in theory, imply a fall of about 81 cents. Only half that at the moment, maybe the market thinks WOW has been underperforming recently....

Plenty of debat and research on value of franking credits overall..

Are franking credits of value to the marginal shareholder
– franking credits have no value post 1997 tax changes (Gray & Hall,
2006 and Cannavan et al. 2004)
– franking credits are valuable (Lally, 2008 and Truong & Partington,
2008)

http://www.melbournecentre.com.au/F...f franking credit balances Richard Heaney.pdf

 

[JTLP]

Observe the war between Coles and Woolies and you see how WOW is on the defensive and reactionary position.

WOW has had to follow Coles in everything... cheaper milk, bring out Margret Fulton, and even similar ads and slogans.

Coles says 'Down Down Prices are Down' with big foam hand pointing down.

WOW comes out with 'Knock down prices' with big green boxing gloves.

They are under-cutting each other on price and that will hurt margin a fair bit over time. Since I don't hold either company I benefit from the cheap milk but not the destruction of shareholder value.

Look at SIP and API, the duopoly in wholesale drug distribution, and see how they ruined each other and the industry...(their share price charts tell the story).

At some point cooler heads will prevail. But I think the market is now pricing WOW at less of a premium to its peers because of this. (MTS is the most directly comparable peer imo).

YES YES YES!!!

Thank you. As I've said it before - I'm on the other side of the fence (FMCG). All i've been hearing is that we have to start initiating price increases because the cost of raw materials has risen far too dramatically.

Now this can be taken 2 ways by WOW and WES - accept the price increases from suppliers and pass onto their consumers OR accept price increases and continue this battle supreme.

It's quite obvious they are taking option 2 right now - as I've mentioned earlier Coles main priority isn't about profit and margins etc atm...it's about stealing market share from WOW at whatever cost - and they are doing this beautifully.

WOW is being too reactionary - and it's showing.