Question:

Sometime in 2021, one prominent investor approached you asking for your informed opinion on whether you think Woolworths Holdings Limited (WHL)s shares were a good buy or not. The investor provided you with historical financial statements that he had collected for the years 2017 to 2021. WHL had 967.822 million shares outstanding trading at R54.78 per share, long-term debt and capital lease obligations of R36.262 billion and a beta on its shares of 0.74. The yield to maturity on the South African 10-Year treasury bond was 10%, the market risk premium at the time was 9.16% and the corporate tax rate was 28%. Woolworths pre-tax cost of debt was estimated as 6.5%. 1) Using the information provided, estimate the growth rates of WHL for the forecast horizon and for the steady state. (5 marks) 2) Use common size analysis and your estimated growth rates to forecast WHLs financial statements for the period 2022 to 2026. (10 marks) 3) Estimate WHLs free cash flows. (8 marks) 4) Estimate WHLs cost of capital for use in your calculations. (5 marks) 5) Determine what WHLs firm value was in 2021. (3 marks) 6) Determine what WHLs equity value per share was in 2021 (3 marks) 7) Based on your analysis, was WHL overvalued or undervalued? Discuss. (3 marks) 8) What tests would you have carried out before making a recommendation? (5 marks) 9) Carry out the tests you discussed above and be sure to include a sensitivity analysis of your value estimates to sales growth and cost of capital. (8 marks)

Table 1: Historical Income Statements (R' million) of Woolworths Holdings Limited (2017 - 2021)

Period Ending	2017	2018	2019	2020	2021
	20-Jun	24- Jun	30 Jun	28 Jun	27 Jun
Total Revenue	67 190	68 592	73 103	72 208	78 763
Cost of Revenue, Total	40 518	41 700	45 139	46 859	49 816
Gross Profit	26 672	26 892	27 964	25 349	28 947
Unusual Expense (Income)	342	6 927	6 153	799	364
Other Operating Expenses, Total	20 466	21 633	22 843	20 623	22 215
Operating Income	5 864	-1 668	-1 032	3 927	6 368
Interest Income (Expense), Net Non-Operating	-901	-767	-769	-2 525	-2 301
Gain (Loss) on Sale of Assets	0	0	0	0	492
Other, Net	1	1	1	1	591
Net Income Before Taxes	6 726	-2 434	-1 800	1 402	5 150
Provision for Income Taxes	1 278	1 115	-716	843	987
Net Income After Taxes	5 448	-3 549	-1 084	559	4 163
Minority Interest	-2	-1	-2	-2	-2
Diluted Net Income	5 446	-3 550	-1 086	557	4 161
Diluted Weighted Average Shares	966	961	957	968	971
Diluted EPS Excluding Extraordinary Items	6	-4	-1	1	4
DPS - Common Stock Primary Issue	3	2	2	1	1
Diluted Normalized EPS	3	4	7	2	5

Table 2: Historical Balance Sheets (R' million) of Woolworths Holdings Limited (2017 - 2021)

Period Ending:	2017	2018	2019	2020	2021
	20-Jun	24- Jun	30 Jun	28 Jun	27 Jun
Total Current Assets	10 287	11 497	11 897	16 034	15 483
Cash and Short-Term Investments	1 787	2 023	2 023	5 534	5 624
Total Receivables, Net	1 470	1 758	1 488	2 164	1 325
Accounts Receivables - Trade, Net	1 211	1 480	1 403	2 160	1 277
Total Inventory	6 990	7 542	8 325	8 054	8 501
Other Current Assets, Total	40	174	171	282	33
Total Non-Current Assets	34 706	28 650	24 032	49 032	40 105
Property/Plant/Equipment, Total - Net	13 846	13 959	14 295	35 653	28 431
Property/Plant/Equipment, Total - Gross	21 844	22 872	24 324	47 542	44 286
Accumulated Depreciation, Total	-7 998	-8 913	-10 029	-11 889	-15 855
Goodwill, Net	11 547	5 000	4 909	5 412	5 118
Intangibles, Net	8 021	8 410	2 374	2 816	7 135
Long Term Investments	1 015	978	810	742	893
Note Receivable - Long Term	107	115	108	84	100
Other Long-Term Assets, Total	143	188	1536	4325	3546
Total Assets	44 993	40147	35929	65066	55588
Total Current Liabilities	10 591	11945	10636	15810	14955
Accounts Payable	4 464	5000	3606	5052	9625
Payable/Accrued	0	115	0	0	0
Accrued Expenses	769	727	605	573	970
Notes Payable/Short Term Debt	183	145	871	97	0
Current Port. of LT Debt/Capital Leases	1 005	2004	263	3670	3263
Other Current liabilities, Total	4 170	4069	5291	6418	2067
Total Liabilities	25 955	27034	26501	58577	46283
Total Long-Term Debt	12137	11711	13259	41952	30571
Long Term Debt	12 114	11685	13234	16023	5963
Capital Lease Obligations	23	26	25	28929	24608
Deferred Income Tax	658	758	63	0	0
Minority Interest	28	13	15	21	23
Other Liabilities, Total	2 541	2607	2528	794	734
Total Equity	19 038	13113	9428	6489	9305
Common Stock, Total	11 375	11399	11407	11413	11465
Retained Earnings (Accumulated Deficit)	9 052	2745	-533	-4909	-641
Treasury Stock - Common	-137	-1475	-1711	-1728	-1715
Unrealized Gain (Loss)	-106	76	12	49	-175
Other Equity, Total	87	350	253	1664	9305
Total Liabilities & Shareholders' Equity	44 993	40147	35929	65066	55588