Our opinion on the current state of WOOLIES(WHL)The fall of Woolworths' (WHL) share price can largely be attributed to the costly acquisition of David Jones in Australia for AU$2.1 billion in 2014, which has since resulted in a R12 billion write-down from the original purchase price of R20 billion. Woolworths' food division has been the primary support for the group, while its fashion and clothing section has struggled in challenging trading conditions.
On 14th January 2020, Woolworths appointed Roy Bagattini, from Levi Strauss, as Group CEO, replacing Ian Moir, with effect from 17th February 2020. Bagattini has been tasked with steering the company back to profitability, especially in the non-food sectors.
In the results for the year ended 30th June 2024, Woolworths reported a 4% increase in turnover from continuing operations, but a 16.8% decline in headline earnings per share (HEPS). The company ended the year with net borrowings of R5.6 billion, though its Australian subsidiaries held a net cash position of AU$39 million. Woolworths achieved a net debt-to-EBITDA ratio of 1.45 times, within its targeted gearing ratio, and reported a Return on Capital Employed (ROCE) of 18.7%, well above its weighted average cost of capital (WACC) of 13.9%.
We advise caution and suggest considering Woolworths shares only if they break upward through their current downward trendline. The current price-to-earnings (P:E) ratio stands at around 16.78, but the shares are still falling, although they may be stabilizing.
