Is Woolworths Group Ltd (ASX:WOW) about to pull the same trick as Wesfarmers Ltd (ASX:WES)?

Credit: Scott Lewis

The share price of Woolworths Group Ltd (ASX: WOW) is outperforming the market today on speculation that it could be looking to spin-off assets into a new listed company.

Shares in our largest supermarket jumped 1% in late morning trade to $28.57 as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index struggled to keep its head above breakeven after the Australian Financial Review reported that several investment bankers are hoping to present the divestment idea to Woolies later this year.

Management has denied that it’s considering the move that will see its gaming, hotel and liquor businesses rolled into a new entity, but that won’t quell the rumours given that shedding assets is in vogue in this market.

It’s archrival Wesfarmers Ltd (ASX: WES) is working on plans to divest its Coles supermarket division, while a host of other companies from Brambles Limited (ASX: BXB) to Commonwealth Bank of Australia (ASX: CBA) have also announced similar plans to sell or list non-core businesses.

Divestments are generally well received by shareholders as these transactions have historically unlocked value and I believe this is one of the reasons why shares in Wesfarmers have outperformed Woolworths by 20% in the past six months.

But Woolworths has the opportunity to excite investors if the deal stacks up. The report suggested that the group could combine its 75% ownership in pubs business ALH with its $8 billion Endeavour Drinks business that owns Dan Murphy’s and BWS, to form a new ASX entity with earnings before interest, tax, depreciation and amortisation (EBITDA) of up to $1 billion a year.

Such a move will allow management to focus its resources on growing its core supermarkets business at a time of increasing competition.

Endeavour Drinks was a growth engine for Woolworths, but the retail liquor market has reached saturation with the business now controlling around half the market and earnings growth slowing to CPI-like levels.

It’s too early to say if the ALH/Endeavour spin-off will happen, let alone if it will take the shape of an initial public offer (IPO) or an in-specie offer where existing shareholders will be entitled to a proportionate number of shares in the new company based on their existing Woolworths’ holdings.

Management is probably too busy to think about this at the moment when it is still in the process of flogging off its petrol station business after the competition watchdog blocked BP from buying the assets.

Nonetheless, investors should keep an eye on the stock even though I prefer the outlook of Wesfarmers over Woolworths at the moment after the former delivered an impressive profit result last month.

There are other blue-chips that are also worth putting on your radar this year. The experts at the Motley Fool have picked three of their best blue-chip stock ideas for FY19 and you can find out what these are by following the free link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Brambles Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.