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We love their products, but would we invest?

April 16, 2024
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FinMeUp
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FinMeUp

Woolworths stock analysis

 

About

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Woolworths Holdings Limited is a South African multinational retail company. Woolworths Holdings consists of three trading divisions, Woolworths South Africa - a leading South African retailer offering a range of primarily private label products, David Jones - one of Australias leading premium department stores, and Country Road Group - a leading Australian speciality retailer. 

 

Share information

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Market Cap: R64.78B

Employees: 39,775

One-year return: 5.83%

Five-year return: 5.09%

Current share price: 6319c

P/E Ratio: 16.56

Div yield: 3.63%

 

Business

Woolworths SA

The South African Woolworths business consists of full-line fashion, home and beauty stores (FBH), many of which incorporate a premium food retail offering. Stand-alone food stores and "Food Stops" attached to Engen petrol stations are also located in urban areas. 

As of June 2021, Woolworths SA had 719 store locations throughout South Africa and 10 other African countries, as well as a strong online presence. 

David Jones

David Jones is a leading premium department store, operating in Australia and New Zealand. The company offers customers products and services from leading national and international brands in fashion, beauty, food and homeware. David Jones currently has 45 stores in Australia and one store in New Zealand, as well as an online store.

Country Road Group

Country Road is a lifestyle brand renowned for stylish, high-quality apparel, accessories and homeware. Country Road Group has subsequently expanded into a house of brands including Trenery, Witchery, Mimco, and Politix. 

As of June 2021, Country Road Group had 606 store locations in Australia and New Zealand, 83 store locations in South Africa, and popular online stores for its brands. 

 

Revenue drivers

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Woolworths SA: combined 66% contribution

  • Woolworths Food: R39 240m revenue, 49% contribution 
  • Woolworths Fashion, Beauty and Home: R13,502m, 17% contribution

David Jones: R14,705m, 18% contribution

Country Road Group: R11,983m, 15% contribution

 

Financial highlights

  • Revenue: +1.7% to R80.1bn
  • Return on capital employed: +16.8% (2021: 14.9%)
  • Online sales grew by 16.4%, contributing 12.4% to the Groups total turnover
  • Free Cash Flow: 448.3cps. (2021: 395.3cps)
  • Share buyback of R1.5 billion over the months of June and July 2022
  • Reinstatement of Group dividend at a 70% payout ratio.

 

Fundamental view

  • Food business doing great, whilst fashion - both SA fashion, beauty & homeware (FBH) and David Jones, seems to be improving.
  • Woolworths holds a niche position in private label in SA.
  • Strong online presence with related logistics already in place. 
  • Competition heating up in a niche area of the market where Woolworths has traditionally dominated.
  • The rising food inflation environment is positive for the Food business.
  • Execution risk on the FBH and David Jones turnarounds 
  • Cyclical weakness in the upper-class market during times of economic hardships.
  • Technical analysis bearish for the short-medium term

 

Our view

Woolworth is a brand known for its quality products and services. From an investment perspective, it does not appear to hold a unique opportunity, especially given the uncertain economic outlook for the next few years. Although we love Woolworths from a consumers point of view, we will not be taking a position in the company at this time.

 

Just a friendly reminder - This is not financial advice. Always do your own research before taking a position. Content is for informational and educational purposes only


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