A leading investment firm reveals that the stock’s current price reflects only the value of its strong food division, meaning investors are effectively getting the rest of the company as a bonus.
JOHANNESBURG – In a surprising twist for investors, financial analysts at PSG Wealth have revealed that anyone buying Woolworths Holdings shares is essentially getting the retailer’s entire fashion, beauty, home, and Australian businesses for free, with the stock price being almost entirely propped up by its stellar food division.
This insight, shared by PSG Wealth portfolio manager Graeme Franck, suggests that the market is currently valuing Woolworths based solely on the performance of its supermarkets, ignoring the potential of its other major divisions.
“When you buy the stock today, you are basically just paying for the food business,” Franck explained. “You are getting the Australian business, the Country Road Group, and the Fashion, Beauty & Home (FBH) business in South Africa for free.”
A ‘Buy’ Recommendation with 30% Upside
Despite challenges in its non-food sectors, PSG Wealth is bullish on Woolworths, giving it a “buy” recommendation. The firm has assigned the stock an intrinsic value of R67 per share, a significant 30% upside from its current trading price of around R50.
PSG Wealth equity analyst Fisokuhle Mbutho believes the robust food business will continue to offset struggles elsewhere. He expects the food division to “maintain margins and expand volumes while increasing prices.”
Furthermore, there is optimism for a recovery in the Australian market (Country Road Group) as inflation eases and interest rates potentially decrease, which could boost consumer spending.
Recent Results Highlight the Split
Woolworths’ latest financial results underscore this two-tiered reality. The food business saw a strong 11% growth in turnover. In contrast, the Australian Country Road Group saw sales decline by 5.4% and recorded an operating loss, reflecting the tough economic conditions and ongoing restructuring down under.
For shareholders, this creates a unique opportunity. They are investing in a market-leading food retailer while holding a free option on the potential turnaround of Woolworths’ other global brands.
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