Wondering about Woolies
Posted on April 12, 2007 by Richard Beddard
Filed Under Companies |
Graeme’s wondering if Woolworths (WLW) can recover. I wonder too. It’s a contrarian’s dream. Even its largest shareholder seems to despise it, and its share price languishes at levels last seen in 2003. Graeme says:
On and EV/sales of 0.3× (at 30.75p) and a gross margin that, although it deteriorated a full percentage point, remains reasonable at 25%, this looks like a business that can recover.
He identifies plenty of ways it could recover, but laments the company doesn’t appear to be doing any of them coherently. And it’s on a price earnings ratio of 25. Hardly a bargain then, except…
My screen shows it has net cash of 17p a share*. If the shares recover, 17p a share is like cashback: You’re buying 13.5p of company and 17p of cash, Suddenly Woolies looks a lot cheaper. If Woolies fritters away the cash on unprofitable projects though, it looks expensive again (or even doomed). Perhaps that’s why, according to the FT, Baugur (the aforementioned disgruntled shareholder) is against Woolies’ plans to refurbish stores that are losing money or suffering declines in sales.
Refurbishment is working for Marks and Spencer though. So perhaps it’s worth checking on that 17p, and the ‘recovery plan’ such as it is.
Just idle speculation at this stage 
Footnotes:
- Data from software programmes and websites is frequently inaccurate. Something I plan to blog about in the not too distant future, so the first thing I’ll be doing is checking on that 17p.
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3 Responses to “Wondering about Woolies”
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You are probably right to be cautious about accepting the numbers on your screen. I think the numbers you are looking at have not been updated for the 2007 results.
The balance sheet for 3rd Feb 2007, shows cash and cash equivalents of £28m and current borrowings of £129. Total current assets were of 709m were almost offset by current liabilities of 657m, so I do not think there are any attractive liquid assets to be easilly grabbed.
However, the main point of my bull argument is that it could recover, and that a major (10%, I think) shareholder expressing disatisfaction should lead to something changing. Expecting the management to gert fired immediately is probably too optimistic though.
You’re absolutely right, and I should have checked the results from 28 March before blogging.
Also the year end figure doesn’t seem to be particularly representative:
But wouldn’t you say the absence of any other explanation for the high pe ratio means investors are already betting on recovery - to an extent anyway?
I use to have shares in wollies but was losing money,so I analyzed their model,and administration.
I wrote to wollies making suggestions;(to open dialogue)they did not even thank me for my intrest?!!!!!!!!
So I’m not keeping money in a company controlled by those that consistantly make the wrong decisions,and refuse to listen to anyone because they have arrived at a position of inexpugnability,and omniputence.And have become detached from “Reality”.
So I sold all my stock in “woolies”:It has fallen a lot more since;I divested into other stock and recovered my loss in 1 mth.
But I’m not putting money into “woolies” losing,delusional plans.
There should be FORCED Resignation,by majority shareholder approval,for their failure to be capitalists.
The only one division of woolies that is doing well is the “Entertainment Wholesale” area.
Either adapt Your buisness model,or “Resign” and relinquish Your voting rights.”It will be in Your best Intrest”