When will the All Ords hit 5000?

[oracle]

It is debatable how well WOW's Lowe's chain is going to go.

Also not exactly the same, WOW's profits are largely driven by supermarket sales, with the food and liquor chains equating to roughly 78% of WOW's EBIT, whilst WES hardware, home improvements AND all Officeworks chains equate to 22% of WES EBIT. A realignment of Woolworths marketshare towards Coles is far more damaging than a realignment of Bunnings marketshare towards WOW.

You might be right. But as an investor if you look at the two companies which will be competing in each others businesses over the next 10 years and more.

Past 10 years growth------------------WOW---------WES

Sales--------------------------------------- 8.5%---------13.3%
Cashflow----------------------------------12.7%---------9.2%
Earnings----------------------------------16.9%---------5.2%
Dividends---------------------------------17.5%---------5%
Book value--------------------------------17.2%--------16.9%


Except sales growth WOW has outperformed WES in all other areas. Both companies are in commodity type of business as in what they do (sell products) anyone can do. So to make above average growth you need to have the right efficiencies in place. People say past performance is no guarantee of future performance. But given the choice I would invest in WOW anyday (at the right price) compared to WES and would have more confidence in WOW delivering above average returns even under tough competition.

Cheers,
Oracle.

 

[WinstonWolfe]

A realignment of Woolworths marketshare towards Coles is far more damaging than a realignment of Bunnings marketshare towards WOW.

agree. also govt regulators are less favorable to the continuing expansion of the duopoly.

 

[Corey Batt]

The problem with looking at ten year history is 7 of those years don't have Coles Group factored. This is where there is a new playing field. WES P/E ratio reflects this, being almost twice the average for sector.

What I believe will be a likely trend is the transfer of marketshare of supermarket and liquor towards Coles, whilst WOW's Lowes is going to have a hard time entering into an entrenched position, requiring HUGE capital to enter a comparable competitive stance. Even under a position of comparable competition there is a reduction possible gains from the saturation of the market.

I'm not saying WOW will fall and WES will be our new glorious leader, all I am trying to get across is that one must take note of the drastically changing market conditions from the early 2000's.

At this time I wouldn't be looking at either stocks as a part of my portfolio, WOW needs to show its ability to innovate in the changing climate, whilst WES price is too high imho, as the growth expected will take over a decade at the very least and as such will either mean price retraction, or stagnated share growth for the period.

 

[Aaron Sice]

I had several private exchanges with NR, and real world confirmation of what he is up to. He has done exceedingly well Aaron in the provision of commercial real estate for the health sector.
[/COLOR]

well, it about time we had some idea of what he was up to.

a comm investor who has been burnt by resi and a brooding hatred for it ever since.....?

no wonder he said he was insulated - his comm leases would ideally provide cashflow regardless of the economic conditions.

here's me thinking he was just looking to sell his bullion.

 

[oracle]

The problem with looking at ten year history is 7 of those years don't have Coles Group factored. This is where there is a new playing field. WES P/E ratio reflects this, being almost twice the average for sector.

What I believe will be a likely trend is the transfer of marketshare of supermarket and liquor towards Coles, whilst WOW's Lowes is going to have a hard time entering into an entrenched position, requiring HUGE capital to enter a comparable competitive stance. Even under a position of comparable competition there is a reduction possible gains from the saturation of the market.

I'm not saying WOW will fall and WES will be our new glorious leader, all I am trying to get across is that one must take note of the drastically changing market conditions from the early 2000's.

At this time I wouldn't be looking at either stocks as a part of my portfolio, WOW needs to show its ability to innovate in the changing climate, whilst WES price is too high imho, as the growth expected will take over a decade at the very least and as such will either mean price retraction, or stagnated share growth for the period.

It doesn't matter whether WES owned Coles or not. It's what have they done with what they owned during last 10years? The track record of WES over last 10years tells you a lot. Earnings and dividend growth of around 5% inspite of sales growing at 13.3%. Growth in sales certainly didn't get translated into same level of growth in earnings and dividends. Compared to Earnings and Dividend growth of WOW at 16.9% and 17.5% respectively with sales growth of 8.5%. What makes you think management of WES have the skills to turnaround things with Coles supermarket? Just because they now own Coles doesn't automatically make them experts at running supermarket chains.

WOW, has consistently performed well inspite of competition from Coles, Aldi, IGA and few more local stores in groceries department. And from stores like Go-Lo, Reject shop and others in cosmetic and household items.

Compared to all it's competitors I believe WOW has a better management team in place who knows how to maximise the bottom line all the time and deliver strong shareholder returns.

Cheers,
Oracle
(PS: I do own WOW shares and have enjoyed good returns so I am obviously biased )

 

[Corey Batt]

Put it this way, considering WOW's position currently within the market there is not much room for expansion other than that of the potential hardware division, which even with a hypothetical spectacular halving of Bunnings marketshare would be a minor increase to WOW revenue. Where can the increases of the 2000's be matched? IMHO this is the point of serious diminishing returns for WOW, however I'm more than enthralled to see where they can expand to next, especially if WOW's management is its main positive attribute.

 

[oracle]

Put it this way, considering WOW's position currently within the market there is not much room for expansion other than that of the potential hardware division, which even with a hypothetical spectacular halving of Bunnings marketshare would be a minor increase to WOW revenue. Where can the increases of the 2000's be matched? IMHO this is the point of serious diminishing returns for WOW, however I'm more than enthralled to see where they can expand to next, especially if WOW's management is its main positive attribute.

I don't know where it will come from. It could be from acquisitions locally or expanding overseas (Asia)??

Put it this way. Both WOW and Walmart are in a very similar business. WOW's market capitalisation is around $35billion AUD. Walmart's market capitalisation is around $195billion US. I know the US market is way bigger than Australian market but so is the competition.

I think WOW will continue to grow as a company and diversify if need be into the future.

Cheers,
Oracle.

 

[Intrinsic_Value]

...............

All of the points you have raised CJProperty are very intelligent points.
Future returns will be dictated by future profit streams not by looking through a prism of the past (otherwise the best investors in the world would all be librarians).

For the record i have no exposure to WOW (nor WES, i sold WES late last year), however whilst i dont think WOW is good value at these prices, i also dont think its significantly over valued. If someone was a passive investor and had bought WOW at much lower prices, and wanted to keep their exposure, i wouldnt be talking them out of it.

I would be telling any such investor to keep CJProperties issues in the back of their mind, and the time to review the case is when those issues move from opinions to fact.

 

[Intrinsic_Value]

well, it about time we had some idea of what he was up to.

a comm investor who has been burnt by resi and a brooding hatred for it ever since.....?

no wonder he said he was insulated - his comm leases would ideally provide cashflow regardless of the economic conditions.

here's me thinking he was just looking to sell his bullion.

no it just confirms why Nonrecourse was a complete tosser. I said it before and i will say it again people like Nonrecourse are potential serial wealth destroyers. Not for themselves but for anyone listening to his opinions.

The GFC was a time of incredible uncertainty, people were being bombarded with negative views. Nonrecourse played on that uncertainty for his own amusement. He was ridiculing anyone with investments financed with form of debt regardless of how that debt was structured, the length to maturity of the debt, the level of servicability etc.

Yet what do we find out afterwards, Nonrecourse sees a viable commercial opportunity and its full steam ahead.

Sunfish made an interesting comment about if one is going to panick, then panick early. This makes alot of sense. Those who panicked late and offloaded everything at the height of the GFC will have incurred significant financial detriment (just imagine those people who switched their supperanuation policies to all cash when the the ASX was down around 3300, they would now be nearly 40% behind the 8 ball, thats a lot of catching up to do)

 

[ILoveProperty]

I don't think NR played on anything for his amusement. In talking with him he always seemed to honestly believe what he was writing on the forum. And I think his commercial purchase(s) happened a medium/long time ago.

It's like any forum/article/etc. a person should take it all in, assess what is said and make up their own mind - hopefully for their own reasons.

 

[Ridin-High]

Put it this way, considering WOW's position currently within the market there is not much room for expansion other than that of the potential hardware division, which even with a hypothetical spectacular halving of Bunnings marketshare would be a minor increase to WOW revenue. Where can the increases of the 2000's be matched? IMHO this is the point of serious diminishing returns for WOW, however I'm more than enthralled to see where they can expand to next, especially if WOW's management is its main positive attribute.

If Woolworths took 50% market share from WES in hardware (Wes revenue was 6.XX billion in hardware) that would increase WOW's revenue by 6.15%

No one is talking about the increases from 2000-10 being repeated in full.

EPS and DPS increased by buy backs, project quantum (2010-2015)

"This project will focus on all aspects of our business including
–End to End supply chain —move to the next level
–Procurement (not for resale) —lowering our costs
–Operational work practices —improving efficiency and lowering costs
–Global direct sourcing —enhancing capability and lowering costs
–Support structures —significantly improving efficiency"

"We have defined plans for space growth, with minimal cannibalisation expected
•Adding 15-25 new supermarkets each year in Australia and expanding existing stores (greater than 3% space rollout pa)
•Adding 3-5 new supermarkets each year in New Zealand
•Targeting 200+ BIG W stores
•Plan to have approximately 150 Dan Murphy's stores around Australia
•Hotels will be acquired selectively
•Petrol stations will grow supporting the Supermarkets rollout strategy"

theirs some info to munch on

 

[ILoveProperty]

WOW aiming to take 10%-20% revenue from WES with new hardware stores.
And make about $30M pa from this. Hardly seems worth it?

 

[steveadl]

Put it this way, considering WOW's position currently within the market there is not much room for expansion other than that of the potential hardware division, which even with a hypothetical spectacular halving of Bunnings marketshare would be a minor increase to WOW revenue. Where can the increases of the 2000's be matched? IMHO this is the point of serious diminishing returns for WOW, however I'm more than enthralled to see where they can expand to next, especially if WOW's management is its main positive attribute.

You're right, bigger co's such as WOW will always have a tougher time finding growth, especially on a decent scale relative to their increasing size.

Remember though, the WOW hardware offer from reports so far is not going to be just hardware but also a homemaker centre and if it works, they may even take it to the next level eg. WOW competing more with the likes of Ikea, Harvey Norman etc. For example (and someone please correct me if I'm wrong, but I can't think of it offhand) tell me where an Australian consumer can buy a fridge, toilet or furniture suite from WOW at the moment? That's another huge opportunity for them and I believe part of the floor space their hardware centres will be devoted to (well fridges and toilets, not sure about furniture). WOW currently make $0 per annum from selling toilets, not hard to expand on that and take market share from co's like REH.

As to other avenues of growth for WOW?
- Additional overseas ventures such as the Indian JV which is growing gangbusters, albeit off a small base.
- Perhaps a large overseas acquisition that would provide a huge platform for expansion and enable them to do in another country what they've gradually done in Aust? They've mentioned over the years they always keep their eye out on overseas expansion, in fact rumours this/last year were they were looking at a US acquisition, though that obviously didn't eventuate.
- Diversification within Aust. - would you have picked 20yrs ago that WOW would now be the largest hotel/pokie operator in Aust? Perhaps 5yrs from now they'll finally crack the pharmacy market they've been agitating to get into for the last decade or more? Perhaps by 2020 WOW will be the biggest owner of newsagents in Aust? Maybe 60% of water tanks sold in Aust. in 10yrs will be a WOW brand?
- Local bolt on acquisitions that don't pi$$ off the ACCC too much, eg. maybe in 2012 WOW will take out JBH to become Aust. biggest DVD retailer? Maybe they'll take out REH to boost their toilet sales? Or perhaps decide to enter the fashion retailing segment and buy out Sol at PMV?

But as I mentioned earlier, it will obviously be harder for a much larger co. to experience the same double digit % growth off such an expanded base. The same problem so many of the big co's have once they reach massive scale (eg. MSFT) and people/analysts moan how the growth has slowed down - of course, much easier for a co. with sales of $50M to achieve growth of 20% than a co with sales of $100B.

 

[Sunfish]

WES, WOW and the banks are already as big as they can be in the Australian market place. They are, and will continue to be solid, safe income investments but not for me.

BHP, by comparison, can spend billions buying a phosphate mine in Canada so does not have the same constraints on growth. I think they are reaching the limit that an organization can reach and maintain health (they are already obese and wasteful) so I look lower down the food chain. That's where real growth is possible. Telstra was never going to grow after privatization either.

 

[oracle]

I don't know where it will come from. It could be from acquisitions locally or expanding overseas (Asia)??

...

I think WOW will continue to grow as a company and diversify if need be into the future.

Cheers,
Oracle.

RETAIL giant Woolworths has parterned with Qantas to launch a joint credit card backed by HSBC that will allow shoppers to collect frequent flyer points.

Full article here

Not saying this is going to give WOW above average growth immediately, but they are looking to expand and diversify nonetheless. First through entering hardware/home improvements business and now credit cards.

Cheers,
Oracle.

 

[Aaron Sice]

You're right, bigger co's such as WOW will always have a tougher time finding growth, especially on a decent scale relative to their increasing size.

Remember though, the WOW hardware offer from reports so far is not going to be just hardware but also a homemaker centre and if it works, they may even take it to the next level eg. WOW competing more with the likes of Ikea, Harvey Norman etc. For example (and someone please correct me if I'm wrong, but I can't think of it offhand) tell me where an Australian consumer can buy a fridge, toilet or furniture suite from WOW at the moment? That's another huge opportunity for them and I believe part of the floor space their hardware centres will be devoted to (well fridges and toilets, not sure about furniture). WOW currently make $0 per annum from selling toilets, not hard to expand on that and take market share from co's like REH.

As to other avenues of growth for WOW?
- Additional overseas ventures such as the Indian JV which is growing gangbusters, albeit off a small base.
- Perhaps a large overseas acquisition that would provide a huge platform for expansion and enable them to do in another country what they've gradually done in Aust? They've mentioned over the years they always keep their eye out on overseas expansion, in fact rumours this/last year were they were looking at a US acquisition, though that obviously didn't eventuate.
- Diversification within Aust. - would you have picked 20yrs ago that WOW would now be the largest hotel/pokie operator in Aust? Perhaps 5yrs from now they'll finally crack the pharmacy market they've been agitating to get into for the last decade or more? Perhaps by 2020 WOW will be the biggest owner of newsagents in Aust? Maybe 60% of water tanks sold in Aust. in 10yrs will be a WOW brand?
- Local bolt on acquisitions that don't pi$$ off the ACCC too much, eg. maybe in 2012 WOW will take out JBH to become Aust. biggest DVD retailer? Maybe they'll take out REH to boost their toilet sales? Or perhaps decide to enter the fashion retailing segment and buy out Sol at PMV?

wow, there's globalisation, right there. no pun intended, either.

 

[redwing]

5001 before Christmas

Nope..

Thought I would look back at this earlier call

 

[oracle]

Nope..

Thought I would look back at this earlier call

We got there not by Christmas but bit over one month later.

Let's see if we keep going towards 6000 or we go back below 5000 in next few months.

Cheers,
Oracle.

 

[Corey Batt]

Hrmmm I think it might need a little more time to grab traction, couple weeks atleast. A lot of cash piling on for upcoming dividends and when they leave my guess is circa 4950. Looks like bright sailing ahead however.

 

[Intrinsic_Value]

Hrmmm I think it might need a little more time to grab traction, couple weeks atleast. A lot of cash piling on for upcoming dividends and when they leave my guess is circa 4950. Looks like bright sailing ahead however.

Firstly who cares when it goes to 5000 again, it has to hold at this level and then go up further otherwise its just a 'blip on the screen'.

Secondly the lack of responses to your post further and the lack of posts in general to the above posters further reinforce my belief that

shares will outperform resiential property in australia on a 5-10 year basis.

This is an investment forum, yet we have more interest in
How is it people can't see through Assange?
http://www.somersoft.com/forums/showthread.php?t=68877

Compare this to prior to the GFC when people on this forum were madly talking about 'investing in property for capital growth' and then cycling the profits into shares to create income. Well this topic is now dead on its feet.

The key to investing is that investing means investing. One invests when an intelligent process can be made for that investment decision.