Woolworths every day low price

Woolworths - Every Day Low Price

Woolworths Cheap cheap

Roughly 2 short years ago Woolworths (WOW) hit a record high of nearly $39 and subsequently has fallen 46% and is now trading close to $21.00.  Right now it is all doom and gloom with the stock becoming a favourite sell recommendation amongst analyst and an easy target for journalists to fill the press with bad news articles.

The question that investors must ask themselves; is it really that bad at Woolworths and should we just join the heard and head for the exits, or is it time to muscle up and buy or average down for existing shareholders?  Let me breakdown where Woolies generates $60 billion in sales per year from:

 

No surprises here, Woolworth's owns Australia’s largest supermarket chain with 873 stores.  I have been a customer of theirs for years and I have to say I can't go past click and collect. 

In New Zealand 160 Supermarkets are operated under the Countdown brand.

Over 600 co branded Petrol stations and being a Woolies customer I use my rewards card and fill up at the one around the corner from home.

I am guilty of a beverage or two, although I don’t drink much I do pop into my local BWS and have bought the odd bottle of champagne at Dan Murphy’s.

I personally hadn't gone into a Big W store for over 15 years for no other reason than there wasn't one close to me.  My local shopping centre is Pacific Fair on the Gold Coast which is undergoing a massive refurbishment that is going to result in it being the largest Shopping Complex in Queensland.  As you may have guessed there is now a Big W in there and it's looking good.

Woolworths own 75% of the giant ALH group which operates 328 licensed venues around the country. What alot of people don’t know is that some of the best pubs in the country are operated by Woolworths! From the Breaky Creek in Brisbane, to Young and Jackson’s in Melbourne, The Queens in Perth, Ramsgate Hotel in Adelaide to Crows Nest in Sydney plus pretty much all the other good ones in between. I guarantee you have all been or go to an ALH establishment...

So is the company Oversold?

Woolworths has lost $23billion in market value since it reached its high. The major reason being a combination of the doomed Masters business (which is now getting sold) plus competition from Coles and now Aldi.

I don’t see Aldi taking serious market share off Woolworths and Coles because I feel the Australian consumer has become more sophisticated with their cooking (thanks to shows like Master Chef) and are demanding a wider variety of groceries to do this. I believe Woolworths and Coles will always dominate and both companies have built major infrastructure in the country over the past few decades to supply the population with food.

What I do see happening with the stock is a major foreign private equity player lobbing a bid to takeover the company. Think about it; the $A has been smashed, interest rates are cheap, Woolworths stock is cheap and the company is still making over $1.6 billion in profit per year. Woolworths is a beast of a company and has been nicely roasted for private equity to carve it up. Remember only a few years ago,  KKR (US private equity giant) wanted to buy Coles but was trumped by Wesfarmers. At the time Coles was underperforming just as Woolworths is now. 

If I am wrong about a bid emerging in the short term, investors should still enjoy healthy fully franked dividends of around 5% (grossed up 7.1%). This beats 1.75% in a bank account. Woolworths management could also do its own carve up just like Packer is doing with his Crown group. With the stock trading at $21 the old 1 + 1 will actually equal 3 in terms of value for shareholders.

 Woolworths is trading at an everyday low price so I recommend you own your share while it is on sale.

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