Markets: Pulling at Woolies

Woolworths' stock will continue to suffer from its loss-making home improvement business, say Citigroup.

Woolworths has disclosed that its home improvement business, Masters, will lose $139 million in its 2013 financial year. That is higher than a budgeted $80 million loss.

At 1313 AEST Woolworths shares were down 5 cents, or 0.2 per cent, to $33.27, after earlier falling as much as 1.2 per cent to $32.91. The stock is down 1.5 per cent this week.

Citigroup analyst Craig Woolford says Masters is a start-up and losses are to be expected but is concerned about low sales per store and expects more capital expenditure by the company on the stores.

Woolford rates Woolworths shares a sell.

Morgan Stanley analyst Thomas Kierath says Woolworths is too optimistic about Masters.

The company says Masters losses will drop next year. But Kierath says this view is predicated on sales growth per store, improved margins and lower operating costs.

Given all of these metrics disappointed in the 2013 financial year, we continue to see downside risks in these optimistic assumptions,” says Kierath. He has a sell rating on the stock.

“The tail risk from potential further underperformance remains large, in our view, given the annual overhang from Lowe's option to exit,” adds Kierath.

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