Guiding consumers since 2009

Investment guide: Woolworths

By Jessica Anne Wood
 Handy tip: Not ready to take the plunge and invest in stocks? You can start with a unit trust.


Recent reports highlighted the financial issues that appear to be plaguing Woolworths. This is compounded by a growing number of retailers vying for the declining spending power of consumers.

However, it can be difficult to judge the performance of a company. Paul Chakaduka, senior trader at GT Private Broking noted that stock performance is relative. Woolworths Holding Limited (WHL) is down 18% over last year, however, the stock is up 4.9% year to date.

Chakaduka further stated: “The stock performed dismally in 2016, however, the stock has started the year on a sound footing. WHL had a phenomenal 2013-2014 with strong earnings, however, earnings began to taper in 2015 which saw the share price coming under pressure in 2015 and 2016.”

Stefan du Toit, a stockbroker at PSG Wealth Durbanville, stated that market sentiment towards retailers was negative during 2016, with the General Retailers Index flat over a one year period. Woolworths was not the only retailer to fall under severe pressure, with updates from most retailers indicating constrained consumer spending, as well as rising input costs and flat like-for-like sales growth. “Added to this was a sluggish SA economy which grew by only a mediocre 0.2% q/q in Q3 of 2016, with rising interest rates putting further pressure on an already constrained consumer.”

According to du Toit, over the past five years, WHL has performed favourably on the JSE when compared to the FTSE/JSE All Share Index. “The Woolworths share price gave investors a total return, including dividends, of 105% (annualised 21%). This compares favourably to the total return of the FTSE/JSE All Share of 83% over the same period.”

Is Woolworths a good investment?

This can be a difficult question to answer, as there are a number of factors to take into consideration. Chakaduka says: “At its current market price WHL provides a good investment case for a long-term investor. The business has faced a several headwinds in the last two years and has been acquiring businesses across the globe to diversify its exposure and to grow its income streams. Not all acquisitions have been earnings accretive for the business, however, we expect to see stronger synergies and growth going forward.”

Due to its relatively unique business structure, WHL can be difficult to compare to other retailers on the market, according to Chakaduka. WHL investors have exposure various industries, including food retail, clothing, homeware and financial services.

Du Toit noted that other retail groups listed on the JSE include Shoprite, Pick n Pay and Spar. “Of the retail groups Shoprite has the largest market capitalisation with R99 billion, followed by Woolworths on R76 billion, Spar on R38 billion and Pick n Pay with R33 billion.”

He added: “From an underlying earnings perspective, Woolworths is the best price trading at a PE (price per earning) of 15.8x. Shoprite, Spar and Pick n Pay have historic PE ratios of 19.2x, 19.5x and 27.8x respectively.”

 Further reading:


What to consider before investing

When looking to invest in Woolworths, du Toit stated: “Woolworths is one of the biggest retailers in the Southern Hemisphere with a strong footprint in South Africa and Australasia. The company provides significant exposure to the Australian economy with approximately 40% of operating profits generated abroad. The company furthers provides a good product spread, which includes Woolworths Clothing, Woolworths Food, David Jones and Country Road. Twenty-five percent of operating profit is attributable to the foods division, providing investors with decent defensive characteristics. The company further targets upper middle class customers where spending habits tend to be less cyclical.”

Before making an investment, there are a number of factors to consider. Chakaduka stressed that it is important to look at growth in revenue, businesses profit margins, gearing, cash flow, stock turnover and ultimately dividends.

Recent Articles

Featured Get personal with your finances – and tie the knot

As time passes, your financial products may not live up to your needs. Therefore, it’s important to take stock of what you’re paying for and adjust where necessary. We got in touch with financial advisers to find out how you can get your finances in order, and what you should do to ensure you’re financially stable.

Personal loan or business loan? The best way to finance your business

When starting your own business, you may have to rely on external funding. Perhaps you qualify for a personal loan, but would it be better to take out a business loan instead? We got in touch with a specialist to find out whether it’s best to take out a business loan or a personal loan to assist you with your ongoing business or start-up.

What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?

Best travel cards offered by top South African banks

Planning a trip abroad involves a lot of administration. You need to consider travelling arrangements, reasonable accommodation, and a daily itinerary. But have you considered how you’re going to pay your bills once you arrive? Besides considering bank costs, you also need to consider exchange rates.


Takealot January Big Sale

Price: Available on request
When: Until 31 January 2020
Where: Online

Annique Restore Package Special

Price: From R600
When: Until 31 January 2020
Where: Centurion

Ster-Kinekor Senior Citizens Discount

Price: Available on request
When: Daily
Where: Nationwide