Are Woolworths shares a good value?

Reported net profit rose 282.5 percent to $7.9 billion, but this figure reflects the spin-off of the Endeavor Group beverage business as its own listed entity last year.

Staff are still taking days off at higher rates than before the pandemic, the company said, but COVID-related costs are coming down, which analysts see as a big positive and a sign the business has outgrown the worst conditions of the pandemic. .

“COVID costs decreased to $18 million in 4Q22, well down from 3Q22 ($66 million) and 1H22 ($205 million),” Citi analysts said in a research note to clients after the filing. of company results.

“We took on $80m of COVID costs in FY23e, helping to boost Australia’s food EBIT margin by 34bps despite significant cost pressure.”

Barrenjoey’s research team notes that the figures suggest Woolies has brought costs back under control at its Australian food business after a challenging period.

“The lessening of the impacts of COVID and a greater management focus on costs appear to have driven much better [second half] Results of food vs. [first half]said Tom Kierath, consumer analyst at Barrenjoey.

The case of the bear: The company has made it clear that volatile business conditions would continue into this fiscal year, from sustained food inflation to ongoing supply chain issues.

Trade at Woolworths supermarkets in Australia slowed in the first few months of 2022-2023, down 0.5 per cent.

Meanwhile, business at the company’s New Zealand stores fell throughout the year, with management expecting a softer first half of fiscal 2023 due to staff absenteeism, rising costs and chain disruption. of supply.

“For the first half of 2023, we forecast NZ Food’s EBIT to decline 39 per cent to NZ$123 million,” said analysts at Morgans, who have a “hold” rating on the stock.

Despite these uncertainties, stock watchers have been largely positive about the company’s long-term earnings, pointing out that it is the immediate future that is more difficult to forecast.


“We keep seeing [Woolworths] as a good defensive business that should do relatively well if macroeconomic conditions worsen,” Morgans said.

Analysts have been watching the company’s price-earnings (PE) multiple in this context, with Woolworths shares trading as high as 29 times earnings.

“We maintain our preference for Coles Group due to its lower PE multiple,” Macquarie analysts said.

  • The advice provided in this article is general and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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