Sentiment towards our largest supermarket operator Woolworths Group Ltd (ASX: WOW) has not been hurt by the latest setback to sell its petrol stations to BP Plc .
The share price of Woolworths is trading 0.6% higher during lunch time trade at $27.03 following yesterday's news that the Australian Competition and Consumer Commission (ACCC) is opposing a deal by BP to acquire Woolworths' petrol station chain.
Most analysts have brushed off the development and some have even modestly revised up their earnings forecasts for Woolworths on the assumption that the company will keep operating the petrol stations.
However, Macquarie Group Ltd (ASX: MQG) said the announcement is likely to raise question marks over the funding sustainability of Woolworths' store refurbishment program.
"Despite a strong start to FY18 trading at the recent quarterly, we have not seen the funding of this sales performance (i.e. GM/EBIT) and the comps will get harder to cycle," added the broker. It has an "underperform" recommendation on the stock with a 12-month price target of $26.17.
"Also, trading on 22 times, the stock is already implying improved profit outcomes."
While not all analysts are concerned about Woolworths' ability to fund its refurbishment program, it will be a disappointing outcome if BP walks away from the deal as the oil giant was willing to pay a good price for the asset.
It's not necessarily game over though. Both parties could make changes to the acquisition to appease the competition watchdog. This may include divestment of some assets to other parties.
They can also challenge the ACCC's decision though the courts or Woolworths can seek an alternative buyer for its petrol business.
The good news is that investors are unlikely to care much what happens. The more important drivers for the outlook of the company are the turnaround of its struggling Big W department store and growth in its grocery chain that is being hammered by fierce competition, including Amazon.
Woolworths isn't the only one suffering from the competition squeeze. Wesfarmers Ltd's (ASX: WES) Coles Supermarket division is also under a cloud, although grocery distributor Metcash Limited (ASX: MTS) has managed to find favour with investors recently from its diversification strategy.
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