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Woolworths Group Limited 2019 AGM

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Woolworths Group Limited (ASX: WOW) consists of supermarkets, Big W discount department stores and drinks and hospitality (known as the Endeavour Group). Woolworths has a market capitalisation of A$49.2 billion.

WOOLWORTH

Woolworth’s recent business operations

In the last few years, Woolworths closed the Master Hardware business in 2016, sold the petrol retail business (completed in April 2019) and is currently downsising the Big W business by closing stores (around 30 over the next 3 year). In addition, it announced on 3 July 2019 plans to divest the Endeavour Group. These businesses represent around 30 per cent of Woolworth’s earnings before interest and tax (EBIT). The sale is expected to occur in 2020. The sale could by way of a trade sale to another party or through a demerger (so Woolworths’ shareholders will also own shares in the new listed company called Endeavour Group).

Divesting the Endeavour Group is a positive development for Woolworths. Woolworths business is becoming increasingly simplified and focused on supermarkets. Also, this should enable Endeavour Group to realise its full potential and seek out greater access to capital to stimulate further investment.

What are the key points from Woolworths AGM today (16 December 2019)?

  • Results – full year 2019
    • Net Profit after Tax attributable to Woolworths group shareholders (continuing operations) is A$1,752 million, up 7.2% from the previous period (change normalised).
    • Earnings per share (basic – continuing operations) is A134.2 cents, up 6.8% from the previous period (change normalised).

Woolworths management also commented on the recent discovery that 5,700 Woolworths employees were being underpaid. The chairman Gordan Cairns said “To discover that we have underpaid so many of our team members has been incredibly disappointing. However, I am proud of the way we handled this, which is a testament to the strong ethics underpinning our culture.” In February, Woolworths response was to launch an investigation into the discovery and found that workers were being underpaid. According to management, Woolworths “remedied” the situation. This is a positive response by Woolworths’ management.

What is the outlook for Woolworths?

Woolworths could be of interest to investors looking for a defensive stock. This means stocks with comparatively stable earnings and dividends. Woolworths growth should be underpinned by further population growth of around 1.5 per cent annually and running the existing business better than their competitors such as Coles.

The national accounts for the September 2019 quarter showed that consumption remained weak with the household savings ratio increased from 2.7% in the June quarter to 4.8% in the September quarter. This is not necessarily a negative for Woolworths, as much consumer expenditure in Woolworths supermarkets is non-discretionary and an increasing number of consumers might buy food at supermarkets instead of eating out to save money and to protect themselves against the risk of a deteriorating domestic economy. 

What is the market reaction?

The market reaction to Woolworth’s AGM is slightly positive. Woolworths share price is up around 1%. Woolworths is trading at a forward P/E ratio of 27x and has an annual dividend yield of 2.7% (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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