Woolworths: AGM 2015
Recommendation
New chairman Gordon Cairns must be a glutton for punishment. Fresh from facing shareholders at Origin Energy's annual meeting last month, today he stepped into the boxing ring with shareholders at Woolworths' annual meeting.
Having agreed to take on the role of Woolworths' chairman only two months ago, Cairns can't say he wasn't warned. But he handled the meeting with aplomb and was generally pretty impressive.
Cairns has been getting on with the not insignificant task of turning the retailer around. Board renewal continues and, with another two directors falling on their swords recently, only six appeared on stage at the meeting. Cairns has also appointed former chief executive Roger Corbett as an adviser to the board, although this could be a sop to major shareholders and it risks alienating executive management.
A new chief executive has yet to be appointed to replace Grant O'Brien, who remains in that position. At the meeting Cairns announced that interviews are underway but that the 'Board will not be rushed'. This is sensible and, while we generally prefer internal appointments, an outsider is probably more likely.
Private equity firms also appear to be sniffing around some of the company's assets, in particular discount department store Big W. While Cairns apparently isn't keen to sell assets just yet – a decision we agree with – a sale of Big W is always possible. But a sale price of much less than $2bn for Big W would fail to recognise the division's potential in our view.
With the company having announced that first half profit would fall to $900m-$1,000m a month ago, we weren't expecting any more downgrades at today's annual meeting. O'Brien acknowledged Woolworths was 'tracking in line with our forecast'.
Our view remains the same as in Woolworths takes tough decisions from 29 Oct 15 (Buy – $24.70). The share price is down slightly since then, and we're hoping for better buying opportunities over the next 12-18 months. The turnaround will take time as previously explained.
If you're considering buying the stock, please review the caveats in the most recent review. The recommendation remains BUY.
Note: The Intelligent Investor Equity Income portfolio owns shares in Woolworths. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.