Woolworths (WHL) will be the stock in focus: (Price at time of writing: R71.50 as 17 February 2017)

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chart created with amCharts | amCharts
Background and overview of Woolworths( WHL)
Woolworths Holdings Limited (WHL) is a South African-based retail group listed on the Johannesburg Stock Exchange since 1997. 

The WHL Group consists of three main operating companies, Woolworths Proprietary Limited (Woolworths), David Jones Limited (David Jones) and Country Road Limited (Country Road Group). Woolworths Financial Services (Proprietary) Limited (Woolworths Financial Services) is a joint venture with Barclays Africa Group. See http://www.woolworthsholdings.co.za/

13 August 2017:Share price graphic update

The interactive chart below shows WHL's share price for the last number of years. Adjust the data and the chart recalculates WHL's share price movement, change the negative and positive candle colours, download the graphic or the data.

Percent change:

 Wooloworths operates in a very congested market. They have competition on the food side from Spar, Pick 'n Pay, Shoprite, and on the clothing front from The Foshini Group and Mr Price. Their net profit margins are however superior to most of these retailers, offering a compelling value investment case before even digging any deeper into their financial results (which we do below). 
​Scroll over or click on the funnel chart to get more details of WHL's latest financial results.
funnel | amCharts
Financial review: 
WHL is sitting on a net profit margin of close to 9.41%. Which considering the amount of competition WHL faces in the market both in South Africa and Australia that is not a bad performance. It is far superior margins than those achieved by larger retail chains such as Shoprite where the net profit margins are paper thin.

Headline earnings per share for the full year came in at R4.56 a share, placing WHL on a PE ratio of 17.8 (which when one compares it to the overall JSE levels of around 23), is not that demanding at all. Infact it is a extremely low PE ratio for a high quality company. Value investors are sure to be pilling into this one at current prices. 
Cash generated from operations amounted to R8.63billion (or R9 per share) for the period. Total cash and equivalents on their books is sitting at a worryingly low R1.5billion (or R1.59 a share). Both of these indicators show that woolies is pretty cash flush and potential investors should not be to concerned about their cash position (even if the share price shows that there are investor concerns regarding WHL and it's future profit potential.

A key variable to look at when it comes to the retailers (in particular those ones active in the clothing segment) is the level of inventories. Are the goods at the shop moving fast enough, or are the inventories starting to stack up. Increasing inventories usually show that stock is moving slower (or the business is bolstering up in expectation of increased demand). WHL inventories increased from R7.29billion 12months ago to R7.99billion currently. Inventories therefore showing an increase of 9.6%. We doubt Woolies expected a surge in demand of around 10% for their goods during the period. We can therefore safely assume the build up in inventories is due to the slow movement of their stock out of their shops.
3D donut | amCharts
From the pie charts it is clear that Woolworths Clothing and General Merchandise earns the strongest margins. It makes up under 22% of turnover but brings in around  33% of operating profit. Woolies foods the biggest contributor to turnover (making up more than a third (39%)) of turnover but only contributing 25% to operating profit. Clearly showing that margins are under pressure in the foods division. The two Australian operations David Jones and Country Road seems pretty stable in terms of contributions to both turnover and operating profits. The Aussie operatins bringing in around 42% of all WHL's turnover. A stronger Rand during the later part of 2016 has affected WHL's earnings from their Aussie operations. Any Rand weakness should see WHL earning way more from their Australian businesses.
A few financial ratios for WHL (calculated using our Financial Ratios Calculator):
  • Debt to Equity Ratio: 1.51  (more than 2 shows high levels of financial leverage). 
  • Current Ratio: 0.92 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities). 
  • Quick Ratio: 0.37 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).  
  • Return on Assets (ROA):6.96%
  • Return on Equity (ROE): 17.50%
  • Net Profit Margin: 9.41%
  • Dividend Yield: 3.72%
Valuation: 
Based on WHL's current financial results we value them at between R101.00 and R101.30. We therefore feel that the sell off in WHL has been overdone and we expect WHL to offer long term shareholders buying at this price superior returns to the market if they willing to hold on and ride WHL back up. A valuation of R101 places WHL on a PE of 10.3 (assuming second half earnigns matches that of the first half of the year). That is well below the current JSE All Share PE ratio of around 23.

We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.

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