Pinned straw:
Ipsum
I'm enjoying this discussion about a company I wouldn't normally focus on. One of the best things about being on Strawman.
It's not specific to Woolworths, but I'd also consider the continued high rate of net immigration to Australia as a tailwind.
The federal government is aiming to reduce net migration to "375,000 a year by June 2024" (The Guardian). This is a reduction from the current level but still high compared to pre-2020 levels.
Chart from ABS Media release, plus my annotations
Sustaining this level of immigration means Australia's population looks set to grow at rate that is high compared to rest of the OECD.
It's also looking like the way to achieve this is to reduce the number of student visas (which accounts for about half of temporary visas). I assume this is because the alternative is to reduce the number of skilled worker visas, which business wouldn't be too happy about. (I guess you could pour money into onshore manufacturing while reducing the number of skilled workers coming in, but it might not be a good idea). My guess is this means a higher proportion of the net migration we are left with are skilled workers, and I assume they will have higher disposable incomes and more likely to spend more on groceries.
It's not a direct win for Woolworths but I think it can only help. Be interested to hear any counter arguments!
Scoonie
It is interesting in the media commentary on Woolworths poor Q3 trading results there doesn’t appear to be any reference on the possible impact of Brad Banducci’s Australia Day merchandise debacle. Anecdotally I know two elderly people who said they were no longer going to shop at Woolworths because of the perceived slight of removing Australia day merchandise from Woolworths stores.
Suppose across Australia a number of these cranky old Woolworths shoppers switched and now shop at Coles or Aldi instead. It could have been enough to substantially account for Woolworths sales growth of 1.5% versus 5.1% (4.2% same store growth) for Coles.
Brad acknowledges Woolworths poor results with his statement to analysis yesterday “We were out-traded in the quarter, let me just own that”.
However no mention of his self inflicted Australia Day Merchandise Cluster . Instead Brad wants to talk about Coles having Pokemon cards.
WOW ASX: Woolworths’ March quarter sales grew 1.5 per cent, thumped by Coles (afr.com)
Well this kinda fits with Brad's known behaviour at the 4 Corners walkout interview and the recent Senate enquiry. And we can only speculate how he treated suppliers behind closed doors.
At least you can’t fault Brad for a consistency in arrogance.
I am sure most WOW shareholders will be glad to see the back of Brad.
Maybe he will turn up at Bapcor?
Strawman
Hope you're enjoying your honeymoon @Parko5
I've long been on the record as saying Woolies is an awesome business, but has for a long time traded well above what its likely growth could justify. Consensus estimates are something like 4-5% CAGR in EPS over the next 3 years (and these tend to overshoot a bit)
But as you say things are getting a bit more interesting following the ~20% drop over the last 12 months. Now you're looking at a forward yield of 3.5%, or about 5% with franking. You get that at present with a term deposit, but with a bit of modest growth in earnings and dividends that total shareholder return is nudging double digits (applying the heuristic that starting yield plus dividend growth = total return)
So i think it's getting close to fair value, and perhaps even good value when you risk-adjust things.
The prospect of "higher for longer" (and, indeed, some calling for rate increases!) is probably what's taking the shine off things. But I'm in the camp that higher rates wont eventuate regardless of the inflation situation, at least not much. Things just start to break with a higher benchmark lending rate, and the powers that be will ALWAYS choose 'cost of living' pressures over a recession. As I see it, that's the choice facing policy makers right now (barring a radical improvement in fiscal responsibility and sensible public investment -- so don't hold your breath)
Anyway, Woolies is unlikely to shoot the lights out from here, but you could do a lot worse if you were after long term capital preservation, income and some modest growth. Especially if you were a bit bearish in terms of the macro picture.
I'm considering adding some to my SMSF.