With the recent news of a takeover offer for David Jones Limited (ASX: DJS) from the South Africa-based Woolworths Holdings Limited (Johannesburg: WHL), the market’s attention is focusing on what will change in department store retailing. While this is happening, investors shouldn’t lose sight of what the Aussie-bred Woolworths Limited (ASX: WOW) is up to.
The retailing giant is still locked in competition with its equally large rival Wesfarmers Ltd (ASX: WES), the owner of Coles supermarkets and other businesses like Bunnings Warehouse, Target and K-mart. That can’t be avoided, yet that doesn’t mean one or both can’t grow at a decent pace.
I have three reasons why Woolworths is worth owning now.
Earnings track record
Over the last 10 years, the company has expanded revenue uninterrupted. Earnings per share have the same upward trend – nine years of continuous annual growth. In 2012 it had an exceptional year of earnings which made 2013 look lower. However, 2013’s net profit was higher than 2011 and previous years before then.
Need for more stores
In an economy that is beginning to take off, rising property markets and low interest rates fuel the creation of new suburbs and communities, all of which need to be serviced by retailers. The natural population growth rate and the expansion of suburbia keeps Woolworths busy rolling out new stores.
It can cover much of the daily shopping that many customers do through its supermarkets, Dan Murphy’s and BWS liquor stores, Masters and Home Timber and Hardware DIY stores and Big W general retailing. How many are already in your local area? How many of these do you think will be in new suburbs?
Share price movement
The share price is $37.09, setting a new all-time high. That might put off some investors because of concerns that it has run its course for the meantime. I am of the mind that general economic growth may support a run up from here.
Some people may think it is a slow-growth industry, but Woolworths’ past share price gains would prove them wrong. From 2000 to now it has risen from about $6 to over $36.
The chart below shows how during 1998-2000, 2001-2004 and 2008-2012 the share price creates a step-like trading range, then takes off from there. The actual steady earnings growth makes the platform until the market revalues its future potential upwards.
Woolworths is a classic stalwart stock and a company that has maintained high performance. It benefits when the economy is growing, yet holds its value in downturns generally due to its defensive nature.