Woolies serves unappetising cake but investors eat it up


Woolies serves unappetising cake but investors eat it up

While Rolfes needs to capitalise on its water projects

Company comment

Woolies: Ugly icing was a R6.9-billion writeoff 
The Woolworths share price shot up to R67.70 in early trade on Thursday shortly after an upbeat presentation of a downbeat set of results for the six months to end-December. But later in the morning the market seems to have had second thoughts and the share price shed some of its gains, closing 1.85% up at R65.40.
By any measure they were a poor set of results and the R6.9-billion writeoff on David Jones was the ugly icing on a generally unappetising cake.
One analyst said the results were pretty much in line with the grim expectations they’d been fed by the company last month and was surprised there was any positive share price response. The margins at Country Road were a little better than expected, which was encouraging as it suggested management’s corrective action was bearing fruit.But while Country Road was looking stronger it was still too early to assume the expensive Australian David Jones adventure was firmly on the right course and no further writedowns would be needed. The share is on a forward price-earnings rating of 16.2 and a forward dividend yield of 4.3%, which would have looked like a bargain last year but now looks a little expensive.
The good news is that CEO Ian Moir has made clear that the executives will not benefit from the R6.9-billion writeoff. He assured analysts at Thursday’s presentation that all the executive remuneration calculations would be adjusted to take the write-off into consideration.
Last year the group’s remuneration policy was changed to provide for a 30% weighting for return on capital employed. At the same time the weighting for total shareholder return was reduced from 50% to 20%. Without any adjustment the David Jones write-off would enrich executives.COMPANY COMMENT
Rolfes: There must be something in the water
Rolfes, the 45.8% black empowered chemicals group says it has resolved legacy issues. This comes after the supplier of silica, chemicals and pigments products restated 2016 results to correct “material errors”.
The group recently reminded shareholders that its financial 2017 interim results were also restated, and that full-year results to June 2017 contained numerous once-off charges. Rolfe’s products target food security, clean water and manufacturing. The financial 2018 interims have also been negatively affected by once-off legacy issues – that it says have now finally been resolved – as well as a poor first quarter.A silica mine is in the final stage of being sold. This means the group is continuing to reconcile ongoing earnings against those still held for sale. In this regard, in its interim results ended December 2017 revenue from continuing operations slipped 7.8% to R 734-million, even as gross margins from these operations rose to 22.7% from 21.6% from the same period previously.
The resurgence in both minerals and agricultural commodities post-drought should bode well for future earnings, apart from the ongoing water crisis in the Western Cape, which has hit the company's agricultural division. But manufacturing still has some way to go before it gets out of the doldrums after many years of poor economic growth in South Africa. In the meantime, spending on new water projects in the country has been affected by strapped government finances, as existing water infrastructure maintenance has languished.
This means Rolfe’s water treatment business needs to derive materially renewed energy from Cyril Ramaphosa’s ascension to president.

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