Woolworths Limited Update

Submitted by Craig Strzelecki on 18 April, 2007 - 17:53

Woolworths Limited (WOW) has a Buy 1 recommendation and a price target of $30.30 per share from sharemarket analyst UBS. All divisions of Woolies bar Hotels reported stronger growth rates than those of the 2Q. Food & Liquor posted 6.6% like-for-like (LFL) growth despite declining inflation. BigW was the standout with LFL up 6.0% after adjusting for benefit from earlier Easter. This compares to 1.1% last quarter. NZ grew 4.9%, Hotels 1.5% and Consumer Electronics (CE) 7.5%. WOW confirmed FY07 sales guidance of 8-12% growth.The analyst has put through minor upgrades to some of our 4Q LFL forecasts to reflect the momentum we see across the divisions. They believe WOW & MTS will continue to benefit from disruption at CGJ. Our 12.4% sales growth forecast for FY07 is above guidance. WOW confirmed their interest in CGJ's general merchandise assets. Officeworks & Target hold most appeal in our view. The analyst thinks WOW would have less interest in Kmart. They note HVN delivered higher 3Q LFL growth (10.8%) than CE despite exposure to the weaker growth furniture category. Their price target for Woolworths Limited is derived by applying the cost of equity less dividends to our valuation. The free cash flow yield is rising as working capital & capex fall. This justifies the high PE in our view. WOW remains one of the sharemarket analyst's top picks in the sector along with HVN, BBG & MTS.

Meanwhile another analyst, Citigroup Investment Research has made some observations about Woolworths Limited. Woolworths 3Q07 sales show market share gains: WOW reported 3Q07 sales of $10.6 billion, growth of 8.8%. Volume growth in Food & Liquor accelerated in the quarter. Citigroup Investment Research (CIR) expect WOW's market share gains to continue until the end of 2007 given the problems at Coles. The analyst has slightly lowered its FY07e EPS by 0.2% and increased FY08e by 0.5% to reflect the timing of store openings. Market share gains accelerate; Food & Liquor comparable store sales growth accelerated to 6.6%, despite a reduction in inflation. The analyst estimates 1pp of the growth was a result of customers defecting from Coles and Bi-Lo stores. In addition, higher sales from the Action stores and the ramp-up of recently opened Dan Murphy's stores are driving comp store growth. Big W revival: Big W reported comp store sales growth of 6.0%, up from 1.1% in 2Q07. The dramatic recovery reflects WOW's decisive action to reduce the ranging in poor performing hard good categories and increase the focus on grocery items. Hotels gaming revenue declines to continue: Comparable gaming revenue is falling given QLD smoking bans introduced in mid-2006. Further bans will come into force in NSW and Victoria in mid-2007 and the analyst expects further deterioration in gaming revenue. Coles interest confirmed: Woolworths Limited confirmed it has lodged an expression of interest for Coles' general merchandise assets. The company is in a strong position given the PE premium for its shares and strong balance sheet. While Officeworks is a strong strategic fit, there is greater risk if WOW acquires Target, given fashion risk.

Woolworths Limited is listed on the Australian Stock Exchange (ASX) under stock code WOW. You can view their investor website here. WOW was listed on the ASX on 12 July, 1993。 Michael Gerard Luscombe is the CEO and James A Strong the Chairman fir Woolworths. The company offers food, general merchandise and specialty retailing through chain store operations. Their major brands are: Woolworths, Safeway, Caltex/Woolworths Petrol, Dick Smith Electronics, PowerHouse, Tandy, BWS, Dan Murphy's, BIG W, Foodtown (NZ), Countdown (NZ) and Woolworths (NZ). They operate almost 3,000 stores, petrol sites and hotels in Australia and New Zealand and are involved in a consumer electronics joint retail venture with the Tata Group in India. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade WOW. Check your charts and good luck with your share trading!

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