Woolworths Limited (WOW )

By Jason Fittler 

Woolworths provided an update of the trading performance of its rapidly growing new home improvement brand, Masters.

The brand is in start-up phase and is expected to generate losses until fiscal 2016.

Sales revenue for fiscal 2013 is expected to be AUD 1.2 billion, with this split between Danks, which is focused on trade and building sector, and Masters.

The combined sales growth of 49% from last year is a reflection of the store rollout program.

The Masters store portfolio has grown from 15 to 31, with plans to reach a target of 120 by fiscal 2016.

Woolworths revised up the forecast earnings before interest and taxes loss for the division, from AUD 81 million to 130 million.

Forecast losses were a figure closer to AUD 160 million, reflecting an assumption of ongoing weakness in the first fiscal half. The company expects losses next year not to exceed this year.

After making some minor adjustments to our forecasts for the home improvement division, our fair value estimate remains unchanged at $34.00.

Woolworths price dipped on the announcement below $33 per share.

We continue to hold the company long-term as a core holding.

At the current level it is paying a gross dividend of 5.5%.

We expect that the Masters roll out over the coming years may continue to put pressure on the price.

For more information on Woolworths Limited (WOW) please contact us on 07 4771 4577.