The Money Tree Magazine 1st Issue | Page 66

analysis Stock pick W Woolworths Holding Ltd oolworths is involved in the retailing sector in South Africa. It offers quality clothing, food, home-ware, beauty and financial services under its own brand name. It also operates in Australia via its investment in Country Road and more recently Witchery (ASX: WOW). Woolworths targets the higher income market by providing customers with the top-quality products. It is also now targeting the upper echelons of society through its comparative advantage in the retailing sector. Despite the recent turmoil in the credit markets, Woolworths has come out fairly unscathed. With rising petrol and electricity prices and inflation growing faster than wage prices, people’s disposable income has shrunk. This has resulted in the increase in bad debt and the tightening of credit. With the tightening of credit comes a decrease in consumption expenditure. Now, while this credit tightening has severely affected stores such as Shoprite that target lower-income households, the credit turmoil hasn’t affected Woolworths’ sales. Recently they announced an increase in sales of 20% while analysts were predicting an increase within the range of 12%. With the ever-growing middle and upper classes in South Africa there is an ever-growing customer base to be served and Woolworths face little competition in their niche of targeting higher income households. Woolworths also demonstrates a serious commitment to sustainability.* This often undervalued trait gives companies a big comparative advantage against those who don’t. Woolworths was recently included in the Dow Jones Sustainability Index and is the only South African company to be recognised by the World Economic Forum’s “New Sustainability Champions”. Woolworths has recently been sold off and value can be found in this share at current prices. A few quick stats that depict this value can be found in the price to earnings which has dropped from 26 times to 22 times; the debt to equity is only 0.3; and the return on capital has averaged around 30% over the last six years. The only downside in this stock is its NAV to Price which is over 11 times, and with this comes a degree of risk. The chart depicting the share’s recent performance shows how well it has done. But the question is whether it can continue its splendid run. With its solid and sustainable performance thus far, as well as its relatively low price to earnings (compared to Pick n Pay at 42 times, and Shoprite at 26 times), there still may be great things to come from “Woolies” in the next few years. [JSE ticker: WHL] Woolworths 3 years (6,900c +174.90%) 8741 6952 5163 3374 1585 2011 2012 2013 *If you are interested in learning more about the importance of sustainability, we