WOW - Woolworths Group

ROE said:

$20 here it come you don't have to wait for too long ...

Coles catching up

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Actualy if you compare the 1st Quarter 2012 Retails Sales Results for Wesfarmers with that of Woolworths (year on year with 2011) you will see that Wesfarmers had growth of $602 million versus Woolworths growth of $661 million. If Coles was catching up the growth of Woolworths would be less not greater.

Like all good stories it eventually comes to an end and WOW cant command the premium like it used to in its young day.

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If you compare the financial statistics of both companies (in this instance from WebIress as at close of business Thursday 27/10/11) you would note the following:

Share Price: wes $32.66, wow $24.08
Earnings per share: wes $1.667, wow $1.736
Price to Earnings: wes 19.6, wow 13.87
Divs per Share: wes $1.50, wow $1.22
Yield: wes 4.59%, wow 5.07%

Of the two companies, Woolworths has the higher Earnings per Share and the higher yield (Also Woolworths is fully franked, I admit I don't know if Wesfarmers is fully or partialy franked).

If any of the shares is trading at a premium I suspect it is actualy Wesfarmers.

Plus WOW earning is also mask by its Pokies earning, if the new Pokie laws come in effect WOW got a perfect storm hit it from all directions....

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Both companies own Hotels, hotels have poker machines. Both companies will be impacted by the changes to poker machine law if and when it gets passed through parliament. Knowing the "addicts", they will find ways to get arround the restrictions if they become law.

Still think this stock deserve a premium, not in my book..

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As pointed out above wow is not trading at a premium when compared to wes. If anything the close on friday 28/10/11 of $23.83 makes the yield and price earnings even more favourable. The biggest competion for return with the share price is actualy the proposed notes issue. The margin of 3.25% added to the bank bill rate of 4.75% gives a yield of 8% (no franking credits though).

IMO wow is currently over sold. Currently at a level below the GFC nadir of March 2009 and still increasing turnover, Earnings per share and Dividends per share, year on year. Woolworths is a more attractive long term investment (for those that like long term investments) than Wesfarmers.

Has Wesfarmers paid back the loan they took to buy coles yet? How long do you think it will be before "Masters" starts to eat into the "Bunnings" turnover and margins?

nulla nulla said:

Actualy if you compare the 1st Quarter 2012 Retails Sales Results for Wesfarmers with that of Woolworths (year on year with 2011) you will see that Wesfarmers had growth of $602 million versus Woolworths growth of $661 million. If Coles was catching up the growth of Woolworths would be less not greater.



If you compare the financial statistics of both companies (in this instance from WebIress as at close of business Thursday 27/10/11) you would note the following:

Share Price: wes $32.66, wow $24.08
Earnings per share: wes $1.667, wow $1.736
Price to Earnings: wes 19.6, wow 13.87
Divs per Share: wes $1.50, wow $1.22
Yield: wes 4.59%, wow 5.07%

Of the two companies, Woolworths has the higher Earnings per Share and the higher yield (Also Woolworths is fully franked, I admit I don't know if Wesfarmers is fully or partialy franked).

If any of the shares is trading at a premium I suspect it is actualy Wesfarmers.




Both companies own Hotels, hotels have poker machines. Both companies will be impacted by the changes to poker machine law if and when it gets passed through parliament. Knowing the "addicts", they will find ways to get arround the restrictions if they become law.



As pointed out above wow is not trading at a premium when compared to wes. If anything the close on friday 28/10/11 of $23.83 makes the yield and price earnings even more favourable. The biggest competion for return with the share price is actualy the proposed notes issue. The margin of 3.25% added to the bank bill rate of 4.75% gives a yield of 8% (no franking credits though).

IMO wow is currently over sold. Currently at a level below the GFC nadir of March 2009 and still increasing turnover, Earnings per share and Dividends per share, year on year. Woolworths is a more attractive long term investment (for those that like long term investments) than Wesfarmers.

Has Wesfarmers paid back the loan they took to buy coles yet? How long do you think it will be before "Masters" starts to eat into the "Bunnings" turnover and margins?

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I'm not saying WES is a better business, I think WOW is a better business but
WES was a very very good business before it bought Coles.. Coles pretty much bring WES from a superb business to a mediocre business

Having over paid for Coles there isn't much they can do but to improve on the business
and get better return for their shareholder money....

I'm just pointing out what competition and other factors play against WOW premium status .... Given enough time I think WES under the current team can beat WOW in my analysis of its business.

WES management is very good, I was a skeptic of Goyder but he has proven me wrong ...if you know WES long history they are a survivor and they can go from crap to top dog and that what they doing to Coles.

Here is a brief history on WES if you dont know...they used to be in rural and farming business you can tell by the name and some of the legacy business it still has .... under Chaney he see there is no money in this type of business
he start branching out in Retails and Bunnings was born. Bunning is a cash cow machines and that given them ammunition to buy officeworks and other business and make incredible margin and profit..Officeworks now also a cash cow machine ...

Goyder is heavy influence by Chaney direction and hence he bought Coles ....Once Coles turn around complete it will be another Cash Cow to buy more and they have come full circles and becomes Australia power house in retail

WOW is at the top of their game, they either can maintain the earning or going backward very hard for them to grow like they used to..

WES on the other hand has Coles badly manage for years, now in the process of turning it around, they cant go lower but can only goes up.

Plus WES other business are on fire, Officeworks and Bunnings

where WOW has the trouble child Dick Smith and for many years now they cant turn
it around ....and I dont think they can ... JBH, Good Guys, HVN will make sure they stay there.

On that basis there is no way I pay WOW the premium, the risk to down side is way more than upside.

I also add people can argue WOW Masters cut into WES Bunnings but that to me like WOW take on massive debt, capital expenditure buying in another business...

wouldn't that be the same line as WES takes on Coles in 2007? maybe at a lesser premium

but WOW dont have the cash flow to start up Masters, they have to go into debt and it would takes many years before you see reasonable return on capital for Masters so I reckon WOW is in a sense in weaker position than WES moving forward.

I dont have WES shares and I pretty much crossed them off on my list the day they bought Coles so I dont even contemplate buying them I want WOW but at much cheaper price ...some day I may want WES but not now

I was going to buy SUL, I was waiting for some figures but thank god I didnt hahaha .... they bought the rebel dog I post on hotcopper a bit
so SUL is also off the list

Agree with you re WOW, WES & SUL, there should be some good opportunities in the retail space but I am having trouble finding anything to buy. Maybe ORL, RFG or MTS. MLC is on my watch list but I would like to see some decent results before I buy.

Ves said:

Here's hoping. As Buffett said, you don't need to swing until you find the right pitch. If profits increase the current prices may well be attractive too.

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I suspect that one reality is that ASF is not the font of all knowledge. To each his own.

robusta said:

Agree with you re WOW, WES & SUL, there should be some good opportunities in the retail space but I am having trouble finding anything to buy. Maybe ORL, RFG or MTS. MLC is on my watch list but I would like to see some decent results before I buy.

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You might want to do your own research into RCG, although it is only a small cap, it is offering a yield of 6% at current prices and has had a solid EPS growth over recent years.

WOW hit a 52 week low today, I agree with ROE however it needs to drop another 10-15% before I get interested.

robusta said:

WOW hit a 52 week low today, I agree with ROE however it needs to drop another 10-15% before I get interested.

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Can tech-a or someone else proficient in Elliot Wave give a medium to longer term view of price action for WOW? The trend is clearly down, an infant can see that, but it would nice to have a technical view and / or some price targets to keep in mind.

Ves said:

Can tech-a or someone else proficient in Elliot Wave give a medium to longer term view of price action for WOW? The trend is clearly down, an infant can see that, but it would nice to have a technical view and / or some price targets to keep in mind.

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I think the better question to ask is where is Woolworths in the corporate life-cycle? Slowing earnings and profit growth and now rising debt. Cash cow for a while if you are a risk averse, volatility averse yield taker (SMSF in pension phase). I'm tossing over the hybrid offer currently going. I don't think I will take it on my gut feeling, and our multi-generation SMSF needs an income stream because the majority of its capital is required to fund pensions.

Where is the next catalyst for earnings growth going to come from? Masters? That's lots of capital expenditure looking for a medium term pay-off. Personally, I think Woolworths missed an opportunity with not rolling out Dan Murphy's more aggressively. They could have done more there and in my local area, they have let WES play catch-up with their First Choice offering.

I've been selling down our WOW holding this year. WOW is not on my short list, but looking at the price it might come onto a trader's short list for being undersold (but then aren't most ASX 200 stocks in the same boat?). WOW is not on my short list as a medium term dividend paying stock.

tinhat said:

You might want to do your own research into RCG, although it is only a small cap, it is offering a yield of 6% at current prices and has had a solid EPS growth over recent years.

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I know about RCG, earning look good but very risky stocks ...they are on high margin business without vertical integration, anyone can do it... on the way up look great, on the way down it accelerates very fast...
I seen a few of these before...

I know people gone in there try out shoes, get the size went on-line get the same one 40% cheaper ...this trend wont slow down

I'm more happy with ORL ..luxury, high margin, vertical integrated ..pretty hard for someone to copy and
under cut your price...

For the last two years wow has been trading in a sideways channel between $25.50 and $29.00. The volitilty appears most apparent in the lead up to reporting and again in the lead up to the share going exdiv. The share price appers to improve in the runup to the release of the report, then gets slapped back down, then it usualy improves again in the leadup to going exdiv, then drops after it goes exdiv (usualy by the amount of the div and franking). For some reason wow is concistantly panned for coming in under analyst expectations. Comparisons are made with the retail performance of Wesfarmers Coles divisions and Woolworths is panned.

This panning induced volitility is almost predictable and you have to wonder if the analyst/brokers/media are not working hand in glove to create shorting opportunities followed by long opportunities. The reality is: Woolworths continues to increase market share; continues to increase profit; and continues to lift dividends. This is all the more remarkable when you consider objectively the tough financial times we are currently living in.



Since July 2011 Woolworths has taken on a new downward channel. The only basis I can think of to understand this recent increased bearishness is that an element of doubt/caution has snuck in to the assessment of Woolworths future. The market could have reservations about the Change of Management; the move into Home Hardware through Masters; and the increase in debt levels run by Woolworths to cover the initial setup and operations of Masters.



The Woolworths Balance Sheet and Profit and Loss demonstrates that they are paying dividends out of profits, not borrowings. Further their debt levels are not astronomical and they are continuing to review the finance costs of the debt as the recent issues of notes demonstrates. Their venture into Masters with a joint venture partner has been well thought out, costed and is progressing through the acquisition of sites, construction of stores, sourcing product from suppliers and the opening of some stores.

Where the first Masters stores have opened in proximity to Bunnings stores, the Bunnings store have experience an immediate drop in sales. No doubt with the passage of time, Masters will complete their rollout and take market share from Bunnings and Mitre10. I also expect (because this is a very lucrative business area in Australia) that the Masters stores will contribute to the Woolworths bottom line.

In my opinion this leaves the change of management as a key factor in the recent downtrend. Personally, I find it hard to understand Mr Strong's decision to retire Mr Luscombe and replace him with Mr O'Brien. The old adage "If it isn't broken, don't fix it" comes to mind. Even more so after reading through the Annual Report for 2011 when you compare the back grounds of messers Luscombe and O'Brien. Maybe is was an "age" thing and Mr Strong felt the need to trade up to a newer model.

If it was an "age" or "best before (insert date)" thing, after looking at the age of the Directors in the report, maybe it is time to bring in some fresh blood on the bord as well.

Mr O'Brien is going to have to work hard to convince the media and the shareholders that his leadership will bring even better results than those achieved by Mr Luscombe. Meanwhile, in my opinion, the share price at these levels is good value. If it can break out of the recent bearish channel (upward) the share price should return to the realistic levels of $25.00 - $27.00. Time will tell.

As always do your own research and don't take any notice of my ramblings.

Woolworths broke above the top of the recent downward channel line but stalled arround $24.90 on Wednesday and Friday. It needs to break above $25.00 then move above $25.60 to be convincing.



It wouldn't surprise me if brokers were to re-assess their positions in the near future and decide Woolworths has more upside than the current price (probably on the basis that retail is improving in the lead up to xmas). I can't see them being able to push it down much further (probably have to wait until January 2012 and take the position that xmas sales were lower than expected). As always, ignore my inane ramblings and dyor.

I have kept my Woolworth stock for a few years now and intend to sit on them. They have been hit by the Coles revival but I expect them to gradually claw back Cole's gains. The divi remains over 5% and helps as an investment for those who want increasing fully franked dividends.

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Wow is not one a following closely , but when you say they have been hit by Coles revival I are you saying you can notice it in their reported profit or sales volumes, or are you just blaming the rest share price activity on that,

Can someone provide some figures that Coles are actually gaining market share from Woolies? Or is Coles market share gain from other competitors in the same supermarket space? I'm really unsure how to tell at this point...

This link gives an impression that Coles have won the day of late: http://www.businessspectator.com.au...k-Smith-pd20111102-N872N?OpenDocument&src=rab





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Ves said:

Can someone provide some figures that Coles are actually gaining market share from Woolies? Or is Coles market share gain from other competitors in the same supermarket space? I'm really unsure how to tell at this point...

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The anual reports for Wesfarmers and Woolworths both point to increased sales and increased profits. They both appear to be gaining market share from the minor competitors. Woolworths increased slightly more in dollar value but the Coles increase represented a higher percentage gain on previous year.

Coles you could say are making the easy gains right now because they are starting from a much lower base of market share, sales $$ and profits $$ than woolworths. Let's see if they can keep it up once their overall numbers are a lot higher.

The once great juggernaut that is WOW has begun to slow...whether this is a short term blip on the radar or a longer term thing you have to consider.

Something of note is that if you look at management makeup of the big 2 - you can see that they are flying in international experience from the UK (Tesco types) to make the models more competitive.

You'll notice that Coles has begun to expand its offering in a unique way (MIX clothing or whatever it is) which is very UK styled.

WOW is playing catch up and basically mirroring every move Coles makes at the moment. They were once the move makers...now they follow

JTLP said:

The once great juggernaut that is WOW has begun to slow...whether this is a short term blip on the radar or a longer term thing you have to consider.

Something of note is that if you look at management makeup of the big 2 - you can see that they are flying in international experience from the UK (Tesco types) to make the models more competitive.

You'll notice that Coles has begun to expand its offering in a unique way (MIX clothing or whatever it is) which is very UK styled.

WOW is playing catch up and basically mirroring every move Coles makes at the moment. They were once the move makers...now they follow

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WOW may well have to advance to cover most things as Tesco in the UK has. They have their own bank and are due to start opening branches in the future. All Tesco large stores are open 24hrs except Sunday (6 hours) and I believe will move to open always when a new law goes through the UK Parliament.
Woolworth Bank may one day have a branch in your town.