Huntleys' Stock of the Week

Recommendations: Accumulate

WOW's current stock prices

Irritations nibble at Food & Liquor momentum!

Investment Rating:

WOW has an enviable track record with well above average EPS and DPS growth driving exceptional total returns over the past decade. This reflects well on management's operational and shareholder focus. Project Refresh is a great success capturing almost $8bn in cumulative savings with another $1.5bn to come through further logistics and development initiatives. WOW is a defensive growth stock with a solid balance sheet and an imposing moat surrounding its economic castle. WOW deserves a premium multiple.

Event:

• 1H09 NPAT of $983.3m - up 10.3% on 1H08 - was marginally below expectation and being priced for perfection the WOW share price suffered.
  
  
• Disappointment came in the New Zealand Supermarkets and Consumer Electronics - both reported negative EBIT growth. Australian Food & Liquor continued to shine with EBIT growth of 16.6% to $1,164.2m representing 76.8% of group EBIT at an almost embarrassing margin of 6.89%. Adding Petrol the Australian Supermarkets lifted EBIT by 16.1% to $1,209.9m or 79.9% of group EBIT and 76.5% of group sales.
  
  
• Interim dividend increased 9.1% to 48c per share fully franked.
  
  
• Full year guidance of NPAT growth in the range 11% to 14% on a 52 week comparative basis and 9% to 11% on a 52 vs. 53 week basis is maintained.

• WOW is a proven front runner. The Australian Food & Liquor operations are turning in great results from a leadership position. The same cannot be said for New Zealand Supermarkets or Consumer Electronics where the premier market spot is occupied by another. WOW now has to prove it is a good chaser as the market leaders in New Zealand supermarkets and Australian consumer electronics will not be dislodged easily.
  
  
• We reduce our FY09 NPAT estimate from $1.83bn to $1.798bn and FY10 from $2.035bn to $2.05bn. Fair value reduces from $34.10 to $32.05 and price triggers adjust accordingly.

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