Woolworths: Australian Food continues to shine

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Alex Lu
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By Alex Lu
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Date posted:
24 August 2023, 8:30 AM
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  • Woolworths' (ASX:WOW) FY23 result was slightly above our expectations but in line with consensus.
  • Key positives: Australian Food EBIT growth was 4% above our forecast; Group EBIT margin rose 40bp to 4.8%; Group ROFE increased 120bp to 14.9%.
  • Key negatives: Australian B2B, NZ Food, and BIG W earnings were all weaker than anticipated; The outlook for BIG W looks challenging due to a broader slowdown in discretionary spending.
  • Management said sales in the first eight weeks of FY24 have shown similar trends to 4Q23 with solid growth in the Food businesses but BIG W sales were lower.
  • We adjust FY24/25/26F underlying EBIT by +2%/+2%/+2%.
  • Our target price rises to (login to view) and we upgrade our rating to Add (from Hold). While WOW is not cheap, trading on 24.5x FY24F PE and 3.0% yield, we think its fundamentals remain strong with defensive characteristics, dominant market positions, and a highly-regarded management team.

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