Woolworths

While Woolworths’ share price is virtually unchanged over the past year, perhaps the biggest news for Woolies was the ACCC’s decision to block BP from buying the supermarket’s chain of petrol stations, which would have grossed

$1.785 billion in proceeds and reduced Woolworth’s debt levels further.

Selling petrol stations is a curious strategy because one might assume the network provides an excellent additional channel for click-and-collect convenience, and the debt is easily supported by long-term cash flows generated from working capital.

The first-half underlying profits of just over $960 million were in line with the market’s consensus expectations and were driven primarily by growth in Australian food (up 11% and like-for-like sales up nearly 5%) and hotels (up 17%) and slightly offset by New Zealand supermarkets (down 11%) and reducing losses at Big W.

Meanwhile, the share price reflects positive sentiment towards CEO Brad Banducci, who has done a solid job turning around the business sooner than many anticipated.

Nevertheless, management has indicated that sales growth in Australian food may moderate as research analysts compare sales stats with stronger numbers from comparative prior period.

While there is little to suggest the turnaround momentum won’t continue, we note that the longer-term outlook for investors is somewhat clouded by the ever-present possibility of a derating associated with the eventual concentration of Amazon’s focus on grocery in Australia.