The grocery duopoly has its challenges, but is it in the share price?
On 7 June, Wesfarmers held its strategy day. Two weeks on, we are hearing echoes from what was formally a very rational duopoly.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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danny Stojovski
:
Hi Scott,
I was shocked to see TMF is now holding shares in WES, especially after all the negative write ups on decreasing margins, threat of ALDI etc.
Can you please explain why you entered WES? Even if it is considered ‘cheap’ now? I.e. does the team consider it an extraordinary business with bright prospects?
Cheers
Tim Kelley
:
Hi Danny. It’s probably for me to respond to your question, as I made the call recently to acquire shares in WES in The Montgomery Fund. In short, while WES has some lower quality divisions, it derives most of its value from businesses that I see as high quality, and which operate within attractive industry structures. We can certainly see some factors that can impact negatively on the growth of those businesses, but overall quality remains strong. Every business we invest in carries downside risks, and it’s not enough to just to identify the risks (especially if everyone else can also identify them). We need to weigh them and work out if Mr Market has become overly pessimistic. Cases like this are difficult to forecast, and so our position size is small. We will be closely following the situation as it develops, and may increase or decrease the position as our assessment changes.
Matt
:
Given all the commentary that the Montgomery team articulates regarding future retail risk and thinning margins why is the fund still holding on to one of the largest listed retail companies? Seems strange given the team’s strong views?
Scott Shuttleworth
:
Hi Matt, we have only just entered Wesfarmers, during this period of negative sentiment.
Sam
:
Hi Scott
I know the TMF team have been quite negative on the supermarket sector for a while and that you sold out of Woolies a couple of years ago. As a relatively new investor to TMF I was a bit surprised to read that the TMF still had or had taken up a position in Wesfarmers. Can you or will you share some insights soon on what still attracts you to Wesfarmers given the issues facing supermarkets and other parts of its business like its retail and Coal businesses (I think they might be selling this?)? Thanks
Scott Shuttleworth
:
Hi Sam, there will be more on this later.