Woolworths Group Limited

WOW Details

Recent Business Updates on Corporate Events: Woolworths Group Limited (ASX: WOW) is engaged in retail operations. Its segments consist of Australian Food, New Zealand Food, Endeavor Drinks, BIG W and Hotels. Endeavour Group recently demerged from WOW, and its shares started trading on ASX. As per the demerger structure presented on 10 May 2021, WOW and Bruce Mathieson Group (WOW’s JV Partner) will hold 14.6% shareholding interest in Endeavour Group. The long-held acquisition of 65% interest in PFD Food Services completed on 1 July 2021 pursuant to Australian Competition and Consumer Commission (ACCC) concurrence as announced on 10 May 2021.

Business Update on Financial and Operational Grounds: Pursuant to the acquisition of Quantium on 31 May 2021, WOW shall recognise a non-cash gain of ~$220 million, subsequent to accounting requirements. In line with recent corporate events, Endeavour Group demerger and PFD Food Services acquisition, WOW will recognise ~69 million in transaction costs.

Supply Chain Update: With NSW Supply Chain in fresh and temperature-controlled networks reaching capacity, WOW’s board has approved the construction of a $400 million and 76,000 sq. meter facility at Wetherill Park to cater 280+ stores in NSW and replace the current infrastructure of fragmented temperature-controlled network.

Fair Work Ombudsman Proceedings: Fair Work Ombudsman’s filed Federal Court proceedings against WOW in the matter of underpayments of award-covered salaried managers. Consequently, WOW has engaged in remediation process and manifests an intention for resolution. It is worthwhile to note that WOW self-reported the issue to the Fair Work Ombudsman.

Sneak-Peak in Q3FY21 Results: WOW reported ~$16.57 billion revenue in Q3FY21 relative to ~$16.50 million in Q3FY20. Australian Food sales dived by 0.7% pcp, consequent to an increase of 8.2% in the first 7 weeks (Pre-cycling COVID) while declined by 9.6% in the last 6 weeks (Post-cycling COVID) amidst lower average prices and lower item growth. New Zealand Food total sales declined by 10.2% pcp. BIG W reported ~$1.02 billion in revenue, up by 18.3% pcp with e-commerce penetration reaching 7.5% and e-commerce sales growth of 34.8%.

Movements in Revenue Segments; Analysis by Kalkine Group

Key Risks: Recent potential threat of delta-variant of COVID-19 may significantly affect traditional retailing. WOW is exposed to the risk of store closures and low customer attendance due to the pandemic situation. WOW operates into high and perfect competition markets and hence threats from peers stay intact. Pure-play online stores further add to the competition severity.

Outlook: The PFD Food Services acquisition shall present synergies in supply chain management and present diversification opportunities into wholesale food distribution. WOW has declared plans for starting e-commerce fulfilment program to compete with pure-play retailers. High transaction costs accumulated over two consecutive corporate events may pull down cash flows. WOW continues to witness sales decline across all businesses, excluding Hotel, in Q4FY21.

Stock Update: Over the last month, the stock of WOW went down by ~2.906%. The stock made a 52-weeks’ low and high of $35.955 and $44.060, respectively. Although Q4FY21 results expect a downfall, rising e-commerce involvement may enable WOW to encroach pure-play markets. Synergies with PFD Food Services supply chain and diversification benefit may offset lost top-line from demerger. The stock closed at $37.170, down by ~1.144% as on 6 July 2021.

WOW Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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