WHS - Warehouse Group

[winner (n)]

Yes Perky, WHS performance is interesting and I have a morbid fascination in tracking their progress over the years. At least for some of this century I got paid for doing so.

Red Sheds particularly interesting - like there has been only a couple of years that their sales have grown faster than overall core retail sales in NZ - in other words they lose share of total retail.

Even during bad times for consumers like GFC they lose share .... their sales actually declined during 2008/2010 .....maybe this 'theory' that in bad times punters flock to the everyday low price Red Shed isn't really a thing

Cool chart eh 

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[Perky]

Your my favourite poster winner. I learn a lot from you posts. It's pretty clear you have a lifetime of knowledge and experience in this game. Cheers.

I think the fundamental problem is the warehouse product categories are just average. They need to pick something meaningful and relevant  and become the leader in that so people go back year after year after year. Like Kmart has done with its homeware, or m&s in uk for basics or ikea for furniture. Just do something that people want and do it well. Just buying sschmutter and putting it in a big box gets the result you chart shows.
When was the last time you raced into the Whs to get the best (insert item name)

Hope you get the financial result you want but I don't think it make makes difference to a speedy azz operator like yourself. You've probably moved before the rest of us have woken up to what's going on.
Can't replace experience and knowledge eh.
At least we share a morbid fascination with the big red sheds

[Basil]

Yes well I think the Whs should be doing super well every year...

I think they could be ordinary this year..weighed down by noels coming off Covid tailwinds, torpedo 7 will be so so and red sheds will have sold a lot of milk, flour and butter which kept customers happy but shareholders poor as the selling price of these items is unsustainable. The grocery experiment will end in a whimper and they will go in search of the next category nirvana after they already exited finance,jewelry, Whs xtra, alcohol, Australia...silly solly etc. The market will still be selling heaps but costing heaps to run selling other businesses products.
By jiggery pokery of group numbers the dividend will still be paid

Maybe when the economy slows a bit more the red shed will go better. Not enough pain yet

I could be also be horribly wrong so GLH

Even though I'm not a holder it's an interesting company to follow with its diversity of product mix and sales channels that aren't always closely related in performance ie when Noel's goes well whs probably not and vice versa..when they get all bits going north ...that's the year

Welcome to the forum.  When that's the year the smart ones sell at $4.10 -$4.15 to Nick and other insiders and then buy them back for ~ $3 later on.

[Perky]

Yes Basil, I've noted your good entry and exit calls from time to time and on the Whs. You are my second favourite poster. Learnt some good fundamental analysis from you..just can't keep up with all your flip flopping on some shares and whether your in or out ...but maybe your the trader in the mix and there nothing wrong with that.

That's why winners #1...a bit more mysterious...I wouldn't have a clue what he's holding buying or selling.


Anyway keep up the good work and if you still holding Whs..all the best. I hope all holders makes some $$

Appreciate all the time you put into posting your thoughts. It really helps us novices hear different views and challenge our own thinking.

[Basil]

Thanks Perky. 
 For what its worth, (and I am probably well and truly overdue to get egg on my face with timing on this one so its probably not worth much), I am currently slowly accumulating back some more WHS in the lead up to the result.  I suspect their sales will prove to be more resilient than many others think.
That said, its mainly an income stock in my opinion and the average analysts 12 month price target of $3.71 seems unlikely to me given the clear cost of living challenges prevailing.

[Perky]

Good for you. You could very well be right on sales but I'm not convinced. Your prior trading entry/exits give you some fat to play with.

I'm a bit on the fence myself with Whs.  Held Whs years ago but haven't been in for a while.

I'd consider if the price drops a bit more to give me some safety to hold thru  a reasonable period of time.
 
I'm not skilful enough to enter and exit over a short time frame with any confidence so I tend to be a buy and hold.

I'm thinking interest rates haven't finished rising yet and could be a bit of volatility in market during sept/Oct. I'm in the inflation will be higher and longer lasting camp..particularly internationally.

Just got to remind myself the market is forward looking and I could still be sitting on that same fence wondering how I missed out when the market moves.

Still find following the Whs interesting...they have been on a fascinating ride over the years. Now today I find out Winner used to make money from the Whs without even buying or selling the shares...just selling his time.

[Basil]

Could be worth my own while next week reflecting on some of my previous thoughts pondering whether to get any more ? 

30 March 2022 

I'm happy with how WHS are travelling. I am very impressed with how they performed in the latest half year considering the extraordinary challenges they faced with a 107 day lockdown in the wider Auckland region. They came through that very well indeed and their balance sheet is in excellent shape with $150m in cash (43 cps) and no debt.
The metrics are compelling. They trade cum a 10 cent fully imputed dividend and the average broker price target is $3.70 and on the same day
Some more red shed consolidation is to be expected. Store within a store will bring more efficiencies as will more self scanning checkouts. Don't forget WHS encompasses the extremely well run Noel Leeming and up and coming Torpedo 7.
Brokers are forecasting net profit of $98.7m rising to $107m in FY23 and $115m in FY24. Any rationalization of the spend on themarket.com would see those figures grow by ~ 25% and lead to an immediate commensurate share price appreciation in my opinion.
https://www.marketscreener.com/quote...64/financials/

Probably a very good income stock is how I see it in a nutshell.
Where's the growth going to come from in FY23 and FY24 ? Well for a start its very unlikely there be another 107 day lockdown for 1.6 million people in the Auckland region.

eps is forecast at 31 cps in FY23 rising to 33 cps in FY24.
On a net price of $3.14 (3.24 - 10 cent divvy back shortly) that's a PE of only 10.1 in FY23 and only 9.5 in FY24.
One is paying a no growth PE but getting the growth in earnings for nothing and while you wait you're getting the best gross yield on the market of 10.8% (Average dividend forecast for FY23 and FY24 is 24.5 cps / 0.72 = 34 cps gross / 314 current share price)

I get it the others have more refined business models, (believe me mate I didn't come down in the last shower), and their pricing fully reflects that and the much lower yield reflects for example HLG's better growth prospects. You know I have a lot of respect for HLG but the current year PE of about 20 is at an all time high and their yield with the low level of imputation is at an all time low. I bought that stock when it was totally unloved (like WHS is now) on a dirt cheap PE and a gross yield of 15% @ $2.75. Now the yield is just on 5%.

I'm a value investor Percy. I stick to what I know works for the Beagle fund. I reiterate the forward yield is 10.8% and the average broker price target is $3.70 which on a dividend adjusted buy price of $3.14 gives a ~ 18 % upside on top of that outstanding yield.

Briscoes has been around for donkey's years so any comment they will affect WHS is baseless. If anything, people will be trading down in brands in the current environment. Costco, 1 store, wow, I am trembling in fear lol
Everyone was telling me HLG were done for back in 2016 with Zara and I forget all the other clothing retailers that were supposed to smash them into oblivion. Believe me, I've heard it all before many, many times.

21 April 2022
Brokers remain really bullish with an average price target of $3.70 and a BUY rating.
Forecasting 20 cps fully imputed dividends this year rising to 24 cents in FY23 and 25 in FY24.
FY23 PE only 10.3 and FY24 only 9.6 and eps rising nicely from 29 cps this year to 31 cps and 33 cps in FY24.
https://www.marketscreener.com/quote...364/consensus/
I remain of the view the consumer staples are the best area of retail in the prevailing environment.
I think WHS advertising "Hey small spender" and then promoting a range of discounted grocery staples hits the nail on the head perfectly for the times we live in and is a very good plan to get more people into their stores.

And this one with their dividend history
1. How reliable have their dividends been ?
2. Have they proven they can pay good dividends right across the economic cycle ?
3. Is their dividend policy sustainable, i.e. are they paying out at a ratio that still enables the company to perform well ?
4. Are the dividends fully imputed ?
5. What is the gross yield ?
6. Is the gross yield sustainable going forward ?
7. Will dividends grow over time ?
WHS has the following dividend history, all fully imputed in calendar years
2021 35.5 cps
2020 10 cps (declared but subsequently withheld due to Covid concerns)
2019 17 cps
2018 16 cps
2017 16 cps
2016 16 cps
2015 16 cps
2014 19 cps
2013 21 cps
2012 20 cps
2011 22 cps
2010 30.5 cps
2009 31 cps
2008 21 cps
2007 52.5 cps includes 35 cps special
2006 16 cps
Total paid in 16 years $3.595 = 22.47 cps on average.

I could go back further if you like but I am sure you get the point that their dividends are reliable right across the business cycles even during the GFC. I think you can comfortably say WHS has an excellent track record as a high income stock. I also note their balance sheet is in excellent shape with $150m cash on hand and no debt so they are very well positioned going forward.

Average broker forecast for the next 3 years is
FY22 21 cps
FY23 23 cps
FY24 25 cps
Average over the next 3 years = 23 cps which is consistent with its 16 year average above noted at 22.47 cps.

Taking that average of 23 cps and accounting for imputation credits 23 / 0.72 = 31.94 cps which on a net investment of $3.20 ($3.30 less 10 cents back in a few weeks treated as part return of purchase price)
shows on average over the long run WHS is capable of paying you 31.94 / 320 = ~ 10% Gross Yield at a net $3.20 purchase price.

Probably a very good income stock is how I see it in a nutshell.  Good that they have a nice strong balance sheet with no debt and plenty of cash on hand.

[arekaywhy]

https://www.zerohedge.com/markets/alarm-bells-sound-worlds-second-largest-appliance-company-reports-demand-plunge

I wonder what this might mean for these guys or us...Noel Leeming might not have such great sales coming up?  We might be able to bag a bargain on appliances?  There might be a lack of choice/options in appliance shopping in the near future?

[BlackPeter]

https://www.zerohedge.com/markets/alarm-bells-sound-worlds-second-largest-appliance-company-reports-demand-plunge

I wonder what this might mean for these guys or us...Noel Leeming might not have such great sales coming up?  We might be able to bag a bargain on appliances?  There might be a lack of choice/options in appliance shopping in the near future?

Quite easy. Earnings will either go up, go down or stay the same.

As well - we used to have once in our live an Electrolux vacuum. Never again! I am surprised it took consumers that long to reduce their demand of Electrolux appliances ... and Warehouse isn't selling them (to the best of my knowledge) anyway.

[arekaywhy]

Noel's does

I look at it more from the perspective of general market sentiment

These are significant purchases for the typical shopper

If there is a global slow down in whiteware, will there be a glut with continued production?  Will there be a glut with factories shutting down, and thus a loss of choice for the consumer?  Or will it mean nothing for our market as it is too hard to pack them back into a ship to send to other markets and they just sit on the shelves?

[BlackPeter]

Noel's does

I look at it more from the perspective of general market sentiment

These are significant purchases for the typical shopper

If there is a global slow down in whiteware, will there be a glut with continued production?  Will there be a glut with factories shutting down, and thus a loss of choice for the consumer?  Or will it mean nothing for our market as it is too hard to pack them back into a ship to send to other markets and they just sit on the shelves?

Yes ;

[Basil]

T.A. doesn't look too shabby on WHS...been in a reasonable uptrend for the last 6 months despite all the doom and gloom on the retail front.  As mentioned last week I've recently been slowly accumulating at around $3.30 buying back some of the shares I sold to Nick late last year for ~ $4.10.  Not sure how much more gas there is in the tank in the short run from the early $3.60's but I am happy to hold for dividend income given their superb track record over the long run noted in post # 21 above.  If it dips back a bit I'd be happy to hound a few more up.

[lorraina]

• Group online sales up 39.8% and making up 15.3% of total Group sales.
Positive.
Still room for growth from this channel.

[winner (n)]

Lower @adjusted' profit than I expected

H2 profit margin 2.4% of sales and likely indicator of future profitability (margins and costs under pressure).

Bit of a worry that after selling $3.3 billion of stuff they generated only $7m of cash - and then spent $107m on capex and paid $96m in dividends

The much touted cash mountain of $160m has turned into a pile of debt of $41m

Message to Nick - not a good year really and there's too many excuses and warm fuzzies in your presentation. Hope you realise F23 will be even more difficult and that instead of doing some of the 'awesome things' for the world you just get on and concentrate on making a decent profit.

[Basil]

Lower @adjusted' profit than I expected

H2 profit margin 2.4% of sales and likely indicator of future profitability (margins and costs under pressure).

Bit of a worry that after selling $3.3 billion of stuff they generated only $7m of cash - and then spent $107m on capex and paid $96m in dividends

The much touted cash mountain of $160m has turned into a pile of debt of $41m

Message to Nick - not a good year really and there's too many excuses and warm fuzzies in your presentation. Hope you realise F23 will be even more difficult and that instead of doing some of the 'awesome things' for the world you just get on and concentrate on making a decent profit.

Hard to ignore that significant impact on the balance sheet.  Sales down 3% but add in inflation at 7%+ and that's down 10% in real terms. I've sold and will ask questions later when I'm feeling better.
The other thing is currency is shaping up as a serious headwind for FY23, now under 56 cents and I doubt the SAAS charge of $12m odd is a one off so all reported future profits with be impacted by their SAAS costs.  Going to be a tough year ahead for retail, really tough.  Sold my small holding in HLG today too.  The irony of WHS reporting on the day Costco opened its first store isn't lost on me.