One of South Africa’s favorite retail companies, Woolworths Holdings Limited (JSE: WHL), has firmly established itself as an industry leader concerning sustainability, embracing a “vision to be one of the world’s most responsible retailers.”
Sustainability has become a core pier within the Group’s operating capacity. From eliminating all single-use plastic bags to launching their Vision 2025+ Pillars, Woolworths has firmly cemented its well-deserved place as a top ESG-compliant retailer within the broader South African economy. With the launch of the Group’s Vision 2025+ Pillars – ranging from targeting a net zero carbon impact by 2040 and sourcing all energy from renewable resources by 2030 to ensuring all packaging is reusable and recyclable – it seems apt that Woolworths was “awarded the 2022 Kantar BrandZ Sustainability Award”.
Technicals
Like most retailers, the price action on WHL has been on an upward trajectory since the COVID-19 pandemic lows of March 2020. Woolworths is starting to break out of a consolidation phase (red lines) and a broader triangle technical pattern, which could target higher prices. The price action has also tested key levels of support (green circles) which should be noted and could support the current positive market sentiment. The price action needs to push through the current resistance zone of R69.05 a share to support a move higher to R73.83, which is the next significant resistance.
If macroeconomic events do not support the technical picture, we might expect the price action to move lower back into the critical support areas. This could give long-term investors better entry opportunities as they build on their long-term position in Woolies.
Fundamentals
The retail industry in South Africa has experienced a boom in demand for online shopping, placing additional pressure on retailers to satisfy such demand via their online delivery networks. On that front, Woolies has recently announced plans to expand its operations in the online delivery space to several new locations along the coast. Liz Hillock, director of online and mobile at Woolworths, recently stated that “over 70% of online food sales now emanate from the Woolworths app”. Therefore, objectives to expand their online presence bode well for the Group given the rapid migration of customers towards online delivery.
Looking closely into Woolworths’ earnings, EPS declined by 11% year-on-year from 435.1 cents to 387.4 cents. On the contrary, Headline EPS increased by a steady 6.5% from 374.4 cents in 2021 to 398.9 cents in 2022.
Dividend-seeking shareholders would have been delighted to see a rapid increase in dividends paid. DPS incurred a significant increase of 247.7% year-on-year from 66 to 229.5 cents in 2022. The primary reason behind the rapid year-on-year rise in DPS is strong cash generation and an R1.2 billion reduction in net gearing.
The Group’s Income Statement profit for the year decreased by 10.7% year-on-year from R4,163m to R3,717m. At the same time, cash generated by operating activities has remained relatively stable, declining by a marginal 0.4% from R11,649m in 2021 to R11,602m in 2022. Free cash flow per share incurred a healthy 13.4% to 448.3 cents per share in 2022.
Summary
The key support levels at R64.46 and R58.85 will be watched closely, which could also be possible long entries for investors looking to add to their position. The fundamental and technical views are aligned for investors with a longer outlook, with the first possible target point around the R73.83 share resistance level.
Sources: Woolworths Holdings Limited, Moneyweb, Businesstech, TradingView
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