PIC ‘shows faith’ in Woolworths
• Asset manager lifts shareholding in retailer to 15%
The Public Investment Corporation (PIC), which manages more than R2-trillion in assets, has upped its shareholding in Woolworths to just more than 15% in a move analysts say is a vote of confidence in the retail group. Its stake is worth about R5.4bn.
The Public Investment Corporation (PIC), which manages more than R2-trillion in assets, has increased its stake in Woolworths to just more than 15% in a move analysts say is a vote of confidence in the retailer.
Its stake is worth about R5.4bn. The PIC, Africa’s largest asset manager, owned 11% in Woolworths at the end of the first quarter of 2020.
The increase, say analysts, could be a vote of confidence in Woolworths’ long-term future, while not discounting challenges it faces, especially in Australia and its clothing unit locally.
Perpetua Investment Managers’ Delphine Govender said the PIC is likely taking “a longerterm view” of Woolworths.
“The known weaknesses in the clothing retail business, given the constrained SA consumer, business shutdowns, cash-flow pressures and historic troubles with David Jones’s turnaround, are clearly being reflected in the share price,” Govender said.
“But if we start to see underlying business improvement there could be merit in investing for a longer ... period.”
She said “it is absolutely a point of investment horizon”. Investors might be seeing an improved performance in the business and the share price in a year or two.
Woolworths has written down more than R7bn in its illfated Australia acquisition of David Jones, which it bought for R21bn in 2011.
Its food business, about 45% of overall turnover, is the jewel in the crown but has lower margins than the clothing business that has been struggling in SA and abroad.
Retail businesses face a constrained consumer in SA with many analysts predicting a dire future for the share prices of Woolworths and its competitors in the long term as economic growth remains subdued.
In January, Woolworths brought in Roy Bagattini, a senior executive from Levi Strauss, as CEO to take over from Ian Moir, who was behind the Australia acquisition.
Investment analyst Simon Brown said the PIC often took a long-term investment view and looked at returns over more than 10 years. “Long term, Woolworths will be fine. Australia will one day be behind them one way or another, and profits will flow again,” he said.
Brown said that the PIC also had monthly inflows to invest every month with limited places to put money.
“They have cash flowing in every month that they need to invest and that are so large that their pool of investments is really small relatively, so options are limited.”
Gryphon analyst Casparus Treurnicht did not think the investment was unusual, given the PIC’s size.
“The PIC controls roughly 10% of the JSE’s R6.5-trillion investable market capitalisation. So it is not a surprise to me that 15% is owned by the PIC. We see this quite often in Sens announcements.”
Retail analyst Chris Gilmour, however, felt that it was a bad investment as the retail sector would suffer for years due to SA’s constrained consumers and weak economy
Govender believed the challenges facing Woolworths were more than reflected in the share price, meaning the PIC did not overpay.
“The markets tend to overly focus on short-term difficulties which can cause excessive price weakness. While this is understandable, it creates opportunities should these difficulties dissipate over time.”
Govender said that with Woolworths the risk did seem justified as it had a high-quality SA foods business which she believed was the only business value reflected now in the low share price.
LONG TERM, WOOLWORTHS WILL BE FINE. AUSTRALIA WILL ONE DAY BE BEHIND, AND PROFITS WILL FLOW AGAIN