1. What has caused Woolworths (WOW) to dive over the last two weeks? The demand for their goods hasn’t changed.
The market suddenly woke up to the fact that there will be a lot less money in the economy over the coming months and the boom in retail sales is coming to an end. From the end of September, both Jobkeeper and Jobseeker payments are being reduced. Social security recipients will not be receiving one off payments (they have received two of $750 each), and super withdrawals are coming to an end. It will be a lot tougher for many people – the easy period is over.
All retail stocks have pulled back in the order of 10% (“dive” is too strong a term). Woolworths also went ex a dividend of 48c per share.
The demand for goods may not have changed but there will be considerably less stimulus to support it.
2. I am interested in investing in robotics and AI. I think there is an ETF, ROBO, that is available. What are your thoughts on ROBO?
There are two ETFs (exchange traded funds) that tap the themes of robotics, automation and AI (artificial intelligence). ROBO from ETF Securities and RBTZ from Betashares. I think both are OK but they are quite different in terms of the companies they access. I have done a review on Switzer Daily – you can access it here: https://switzer.com.au/the-experts/paul-rickard/are-you-ready-to-invest-in-robotics-automation-and-ai-megatrends-here-are-two-simple-ways/ [1]
3. On CSL’s balance sheet, it has negative contributed equity. Can you explain how there can be negative equity?
CSL has total shareholder funds of US$6.5bn. This comprises approx. US$10.7bn of ‘retained earnings’ plus a negative US$4.5bn of ‘contributed equity‘ (the amount you refer to), plus US$0.4bn of reserves.
The negative contributed equity is due to share buybacks. Where the price of the buyback is higher than the issue price of the shares, the difference has to be accounted for and this becomes negative to contributed equity.
CSL shares were originally issued for an effective A$0.77 per share. If you are doing a buy back (CSL shares are now around A$290.00), this is a massive difference.
I should point out that CSL has not undertaken a buyback for some time and the balance sheet is reflecting buybacks undertaken some years’ back.
4. Do you think CSL will split its shares again?
It is possible, but unlikely. Remember that a share split creates absolutely no value for shareholders. It is a book entry only, not a single dollar of revenue or profit is created. All that happens is one piece of paper is exchanged for three pieces of paper (on a 1 for 3 share split).
Potential new CSL shareholders aren’t being materially inconvenienced with the current CSL share price. They have to spend a minimum of about $600 to buy two whole CSL shares, rather than the ASX prescribed minimum investment amount of $500.
As a shareholder, I would be saying to the CSL Board to focus on maximising profit and long-term value, rather than spending any energy or time on a share split.
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