How to trade Woolworths shares
Woolworths is one of Australia’s largest and most recognisable companies, with a market capitalisation of A$45 billion. With that in mind, today we look at how traders can trade Woolworths shares.
Trading Woolworths shares
Investors and traders can benefit from the price fluctuations of Woolworths stock by utilising contracts for difference (CFDs).
In contrast to simply buying and holding a company’s stock with the aim of gaining passive income (dividends) or capital gains from share price appreciation, trading CFDs gives individuals the chance to benefit from the price movements of the Woolworths share price – both up and down.
Importantly, because CFDs are leveraged financial products, not only can individuals potentially reap larger profits – on a smaller initial financial outlay – but losses can also be larger.
That is: while the rewards of CFD trading are potentially higher than simply buying and selling shares, so too are the risks.
Understanding Woolworths: a brief history
Woolworths, originally named the ‘Woolworths Stupendous Bargain Basement’, opened its first store all the way back in 1924, in Sydney.
Even back then, the Group’s far-reaching ambitions were apparent. Speaking of this first store opening, the group’s founding chief executive officer (CEO), Percy Christmas, said: ‘Every city needs a Woolworths: Sydney has it now. Every man, woman and child needs a handy place where good things are cheap.’
Mind you, as history shows us, the company has expanded rapidly ever since, with operations that span food, retail, beverages and even hotel operations. This growth eventually led the company to formally list on the ASX in 1993, a year which the Group has described as ‘getting back on its feet’.
Indeed, though Woolworths may not be a flashy or fast-growing company, it has a history of delivering solid returns to its shareholders over the long term. For example, since 1999, the Woolworths share price has risen in excess of 500%.
Such a figure doesn’t include the group’s consistent dividend, either.
Yet even as retail conditions grow difficult and economic growth in Australia slows, Woolworths remains an iconic Australian business, commanding fierce loyalty from its consumers.
Woolworths shares: the basics
Woolworths shares trade on the Australian Stock Exchange under the ticker symbol (ASX: WOW), with the company long being a member of the ASX 200 benchmark.
As part of the food and staples retailing industry group, Woolworths is one of the largest companies listed on the ASX, commanding a market capitalisation of A$47.26 billion.
The current number of free float Woolworths shares outstanding is 1.26 billion. Additionally, at its current share price, the company has a respectable dividend yield of 2.71% and a strong culture of growing shareholder wealth through the issuance of dividends and buybacks.
Woolworths key personnel: who manages the company?
Below we take a look at some of Woolworths key staff that manage some of the Group’s most important divisions.
|Brad Banducci||CEO||Generally speaking, the aim of the CEO is to maximise shareholder value, through effective, strategic decision-making. Though a CEO often has a long-term focus in mind, they are also responsible for much of the day-to-day operations of a company.|
|Amanda Bardwell||Managing director WooliesX||In charge of Woolworths’s digitally focused WooliesX, a business segment that saw strong growth in the 2019 financial year (FY19)|
|Christian Bennett||Head of government relations and industry affairs||Aims to improve the government relations between the Woolworths group and relevant government bodies.|
|Natalie Davis||Managing director Woolworths New Zealand||Looks after the broad performance of the Group’s New Zealand operations.|
|Steve Donohue||Managing director Endeavour Drinks||Oversees the performance of the Woolworths Endeavour Drinks business.|
|Paul Graham||Chief supply chain officer||Responsible for overseeing the group’s all-important supply chain functions.|
|Steve Greentree||Managing director FoodCo, Fuel and Metro||The managing director of the group’s FoodCo, Fuel and Metro operations.|
|John Hunt||Chief information officer||Takes care of the broad information technology (IT) strategy and systems that support the ongoing functioning of the business.|
|Von Ingram||Chief customer transformation officer||Centrally involved in setting the group’s customer-centric strategy and transformation focus.|
|Caryn Katsikogianis||Chief people officer||Oversees the group’s human resource functions.|
|David Marr||Chief financial officer||Has responsibility for the overall financial health and sustainability of Woolworths.|
|Clare Peter||Managing director Woolworths Supermarkets||A large contributor to the group’s overall revenue, this role oversees the performance of Woolworths Supermarkets.|
|Colin Storrie||Managing director group portfolio||Responsible for managing the group’s portfolio.|
What is Woolworths strategy?
The bread and butter of Woolworths business model remains its Australia food operations. Though its business remains generally stable, competition has heated up in recent years with companies such as Costco and the German brand Aldi moving into the space and aggressively trying to capture market share.
Interestingly, even though Woolworths is one of Australia’s largest companies – with a market capitalisation of A$46.3 billion – the company has not been afraid to take an innovative approach to business.
The company has, for example, seen robust growth in its WooliesX – the digital-focused arm of the Group. Woolworths has also created strategic partnerships with the likes of Marley Spoon – a young, innovative food delivery business.
The company is also taking steps to turn around its retail operations in the form of Big W, which has struggled in recent years. On this front and in April, Woolworth’s management previously commented that: ‘We are not satisfied with the rate of translation of sales growth into profit with the announced store and DC closures underway to accelerate the path to profitability.’
To reduce costs, Woolworths has aimed to shutter underperforming Big W stores. Indeed, though BIG W saw losses of around A$85 million in FY19, this actually came in at the low-end of management’s previous guidance, which projected a loss of between A$80 million and A$100 million.
These business strategies are underpinned by a strong culture and set of values, that is united by a single, ambitious vision/purpose.
Here the Group posits: ‘United by our Group purpose, we create better experiences together for a better tomorrow, creates the framework for how we aspire to operate, to be better; for our customers, our team, the communities we serve and our shareholders.’
Woolworths fundamental analysis: how to analyse Woolworths shares
Below we take a look at some of the key fundamental metrics from Woolworths (ASX: WOW) latest FY19 results.
|Revenue, adj||This represents the overall revenue or income that a company makes in a financial year.||A$59,984 million|
|EBITDA||A measure of a firm’s operating performance, before interest, taxes, depreciation and amortisation is factored in.||A$3,602 million|
|Net income, adj||Represents the final earnings that are attributable to shareholders.||A$1,511 million|
|Earnings per share (EPS), adj||This figure is derived from the number of shares outstanding divided by the company’s profits.||A$1.15|
|Return on equity (ROE), ttm||This measures management’s capacity to generate profits from the assets it owns. Generally speaking, a higher ROE is considered favourable by investors.||14.49%|
|12-month consensus target price||According to Bloomberg Data, and derived from the 12 analysts currently covering the stock, the figure to the right represents the average 12-month price target on the Woolworths (ASX: WOW) share price.||A$31.70|
The Woolworths price-to-earnings ratio (P/E ratio)
According to the ASX, Woolworths (ASX: WOW) currently has a P/E ratio of 18.21.
By comparison, local competitor Coles (ASX: COL) has a P/E ratio of 14.06.
As we have previously noted, Woolworths has a current dividend yield of 2.71%, according to the ASX. Though this figure may not be as high as some of the big four banks, Woolworths remains committed to the creation of shareholder value. In 2019, for example, the company returned a total of A$3.1 billion to shareholders.
Woolworths latest dividend came in at around A$0.57 per share, to be paid on 30 September 2019.
Woolworths shares: what’s the outlook moving forward?
According to the Wall Street Journal (WSJ)1, the outlook for Woolworths (ASX: WOW) looks somewhat negative. Of the analysts currently covering the stock 2 rate it a buy, 4 rate it a hold and 7 rate it a sell – notes the WSJ.
1Wall Street Journal (WSJ), 2019
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This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
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