Balanced Portfolio Switch: Consumer Staples

Date: 23/10/2024

*** GENERAL AVICE ONLY***

BUY Woolworths (WOW) 

We have already made an 11% profit on Woolworths this year and only exited due to earnings risk with a new CEO (new CEO’s often “air dirty laundry of the previous) but now the earnings gave us no surprises and the stock is 5% lower than where we took profit, WOW is again looking attractive
Firstly, the company’s strong market position in Australia’s food retail sector is a significant advantage. Woolworths maintains over a third of the market share, which is about 25% higher than its closest competitor, Coles, and three times that of Aldi

Despite some concerns over regulatory impacts and competition from Coles’ automation initiatives

Additionally, Woolworths is expected to see improvements in gross margins in its Australian Food segment, which could help offset operational costs.

Although net profit after tax was down significantly due to specific impairments, the company’s underlying financial health remains strong. The company also announced a special dividend, highlighting its commitment to returning value to shareholders. 

Sell Ampol (ALD)

Firstly, Ampol’s recent financial performance has been impacted by significant operational issues at its Lytton refinery, which experienced a dramatic drop in its Lytton Refiner Margin (LRM), falling 83% quarter-on-quarter and 92% year-on-year to just US$1.48 per barrel

This decline was attributed to maintenance issues and weak global refining margins, leading to a substantial $100 million negative impact on the company’s earnings before interest and tax (EBIT).  Additionally, Ampol’s overall sales volumes have decreased, with a 5.7% decline compared to the previous year, reflecting lower sales in Australia, New Zealand, and international markets

This decline in sales volumes could indicate broader challenges in maintaining market share and profitability.

Trade Plan:

Sell 5% allocation of Ampol (ALD) 8% loss

Buy 5% allocation Woolworths (WOW)