Woolworths – Valuation Review

Woolworths Group has been trading sideways in 2020 within the $35 to $40 price range. This provides a trading range for investors to consider or alternatively, selling calls at the upper band to generate extra cash flow.

On a valuation basis, using 10% EPS growth into 2022, it supports a 3% fully franked dividend yield and places the stock on a 34x forward PE ratio.

Coles Group – Finds Buying Support

Coles Group is under Algo Engine buy conditions and is now up 21.88% since being added to the ASX 100 model portfolio back in August last year.

We have since had a further higher low formation at $15 and new buying support is building.

We see limited upside based on the current valuation and investors are advised to apply a covered call strategy to enhance the income return.  For more details on the strategy, please call 1300 614 002.

Woolworths Group was added to the model in August 2018 and is now up 38.29%

Woolworths – Valuation Review

Woolworths Group is under Algo Engine buy conditions and is a current holding in our ASX 100 model portfolio.

The company is conducting a $1.7 billion off-market buyback which is 7 to 8% earnings accretive on an after-tax basis. Australian superannuation funds on a 15% tax rate are set to benefit from the off-market buyback.

Woolworths is trading on 23x FY20 earnings, which partly reflects the value of the off-market share buyback. If we assume the buyback is creating up to $2.00 of added value, fair value post the buyback, is sub $30.

Even at $29 – $30, it places WOW on 21x FY20 earnings and 3.1% dividend yield.

This places the stock at a very high valuation relative to the long-term average.

Woolworths – Valuation Review

Woolworths Group is a current holding in our ASX 100 model portfolio, as well as the ASX 20 & 50 models.

The stock is up over 9% including dividends after being added at $28.50 back in August last year. With the share price trading at 24x forward earnings and only a 3% dividend yield, we consider it expensive.

We suggest selling a long dated European call option to enhance the income. For more detail on the strategy, please call our office on 1300 614 002.

Coles – Where is Fair Value?

Coles has under invested in the supply chain and online platform vs Woolworths and therefore, investors need to be prepared for lower returns as Coles steps up capital expenditure over the coming years.

If we assume 3 – 5% EPS growth, (half that of WOW), Coles will offer a 5.4% dividend yield into FY20, based on earnings per share of $0.80

Coles trades on 18x FY19 earnings and with little upside to the share price, we recommend investors add a covered call to enhance the income return.


XJO – The 5941 Level Is Technical Resistance

The XJO has formed a “lower high” pattern within the existing Algo Engine buy signal structure.

The market has rallied 6% from the recent buy signal but we’re now mindful of the recent break of the “higher low” structure, as circled on the chart below.

5941 is resistance for the XJO and whilst the market remains below this level, some caution is required.

Names that remain supported within today’s broad market sell off include, AGL, CTX, GPT, WES, SCG, TCL, HSO & WOW. We remain cautious on the banks and select resource names .