Woolies trading update is excellent

Expensive. And then not so much anymore. Sometimes (almost always) you have to pay up for earnings, provided of course that they are quality in nature. There are some share prices that look perpetually expensive, but they always seem to deliver the earnings to back the share price appreciation. Woolworths is one such company.


The company released a sales update and a trading statement ahead of their results which are scheduled to be released on the 29th of August 2013. This is for the 53 weeks to end 30 June, the extra week does sometimes make a massive difference for retailers. Why would a week make a difference? Well, remember in the US that all the way through to the Friday after Thanksgiving Thursday (which is the third Thursday in November), retailers are "in the red". Black Friday was the day that the companies began to turn positive in their books, and the cream was all the way through to the end of the year. Retailing has never been and will never be an easy business.


But here it is: Trading update and Trading statement for Woolworths Holdings. Total stores sales increased 23.2 percent. And earnings? "We expect earnings per share ("EPS") and headline earnings per share ("HEPS") for the 53-week period to 30 June 2013 to be respectively 23-28% and 25-30% higher than the corresponding 52-week reporting period last year. The impact of the additional 53rd week has added approximately 2% to earnings."


So what to expect? Sales last year to June were 28.813 billion, so expect a sales number of around 35.5 billion Rand. And expect HEPS to register between 334 to 347 cents, with EPS around 331 to 344 cps. On the 75 percent payout ratio, the dividend for the full year should clock between 250 to 260 cents per share, but that seems too high. I would be more conservative and suggest that somewhere around 230 cents for the full year, 144 cents for the second half. So what does that mean?


Cheap/Expensive? On an earnings multiple at the top of the range the stock is trading at 18.9 times currently (price 6565 at present) and a dividend yield of around 3.7 percent. I think very fair for the growth rates, and the anticipated growth rates too. The growth rates forward I have for the next two years (as good as the analyst community can give me) are in the region of 17-18 percent for HEPS, and around the same for the dividend, means that your yield at current prices for 2014 dividend is around 4.3 percent. And at current valuations, this is as cheap as the stock has been over the last 18 months.