Woolies better but still a ‘sell’

With a R3.5-billion loss under its belt and a share price that has lost a quarter of its value over five years, it’s not surprising that analysts’ consensus for Woolworths Holdings is a sell.

At a price/earnings ratio of 16, it’s difficult to argue that the share offers much value at its current R56.

Much of Woolworths’ misfortune has to do with its David Jones operation in Australia, where a R7-billion impairment threw the group into a bottom-line loss.

However, there are signs of investor interest.

Element Investment Managers’ Terence Craig says while it doesn’t own Woolworths yet, it’s “looking at it”.

He says top-rated analysts were calling it a buy in February 2016 at R102 and again in February 2017 at R84. By the time it got to R64 in June 2017, analysts were calling it a sell and again in August 2018 at R52.

If investors followed this advice they’d have lost money.

Craig said often prices disconnect with value due to short-term interest and sellside analysts being forced to make a call on a 12-month view.

“Our view is that while it is better priced, prospects for retailers are still poor.”

Craig did, however, feel it had done well in SA. Whether it can keep up with competitors who are improving is debatable, he added.

“It is not cheap enough to invest, but it looks interesting. When something looks cheap, the concern is it may stay cheap for a while and there may be better opportunities.”

With Woolworths, there are still concerns over how long it takes it to correct its mistakes and whether the right management is in place to make these corrections.