Great price for qual­ity stock

Finweek English Edition - - MARKETPLACE - By Si­mon Brown

I have been a holder of Woolies* for al­most a decade and it has been a great stock, but the last year has seen it down al­most 40% af­ter trad­ing above R100 for a while.

The price at R100 was ex­pen­sive and the tough con­sumer mar­ket, cou­pled with the Aus­tralian ad­ven­ture, did not jus­tify the price. But the cur­rent price in the mid-6 000c of­fers great value with a for­ward price-to-earn­ings ra­tio (P/E) of below 13 times and for­ward div­i­dend yield of over 5%.

Con­di­tions re­main tough for lo­cal re­tail­ers but David Jones in Aus­tralia will start to kick in strongly and lo­cal con­di­tions will im­prove in time, and a low dou­ble-digit P/E is a great price for buy­ing a qual­ity re­tail stock.

The risk here is its clothing re­tail di­vi­sion. We’ve seen other lo­cal clothing stores hav­ing a very tough time in the face of in­ter­na­tional com­pe­ti­tion and I am of the view that the in­ter­na­tional re­tail­ers have taken mar­ket share they will likely keep. But food is big in Woolies’ life and here it is the mar­ket leader among the higher LSM groups.

*The writer owns shares in Woolworths.

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