A number of investors have contacted me asking what is likely to happen next at Woolworths.
An article written from a private investors perspective, is already well advanced, In the light of the current economic situation, however, I am publishing a summary of this article early.
I am also in communication with Woolworths about the issues raised on my pages; in particular, the issue of Woolworths reported Net Assets which, at the interim, I have calculated at 16.12p per share. To date, I have not received a satisfactory reply.
It is doubtful there will be any take-over activity in the retail sector, until investors work out the ramifications of the partial re-nationalisation of the UK banking system.
In the light of the World's experience since the first real manifestations of the liquidity crisis in April 2007, I do not believe that the banking and credit system of our country can ultimately be left in private hands. It must be brought directly under national ownership and control.It is unlikely, at this stage however, whether the Labour Government, or the Tory opposition has the stomach, or the will for such corrective action. As a consequence, our financial system, decrepit as it now is, will teeter on a while longer.
In the weeks and months ahead, it will be hard for investors to distinguish between a sucker rally on the worlds’ stock markets and a return of real confidence. Woolworths and it's shareholders are inevitably caught up in the economic mess created by the banks.Without the economic uncertainties, however, parallels can be drawn between Woolworths and MFI Furniture. In the 1990's MFI Furniture was unloved by the city and collapsed as low as 26p per share. Woolworths, as did MFI own some cracking brands in Schreiber and Hygena. MFI also owned a chunk of freehold property which it sold and leased back releasing capital it used to restructure the core business and roll-out Howden’s Joinery, which proved very profitable indeed. Under the guidance former WH Smiths man John Hancock the Company recovered ultimately lifting the shares over 200p.
Woolworths has little freehold property, but does have long leases some of which have already been sold to Waitrose for some £25 million. Woolworth’s is also reported more recently to have sold some unprofitable stores and is likely to continue to do so.
If Woolworth's Steve Johnson is another Hancock then it may just be worth the wait, but new CEO's task has been made immeasurably harder by economic events completely outside his control.Canny investors are already out of property and hold cash and are waiting to pounce. Why, then, should anyone with any intelligence whatsoever, bid for a company today when the market is falling like a lead balloon. For private investors with Woolworths shares at 3p as I write it's a case of tough it out or bail out and, for the time being, stick the money under the mattress.
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