Table of Contents

41 Executive Summary �

52 Purpose of the report �

53 Woolworths Holdings Performance Overview �

53.1 Company and Strategy Overview �

63.2 Financial Information Overview �

63.3 Historical Performance Analysis �

63.3.1 Share Price �

73.3.2 Dividends Growth �

73.3.3 Earnings �

83.3.4 Sales Growth �

93.3.5 Return on Equity �

103.3.6 Financial Health �

103.3.7 Economic Conditions �

114 Historic risk assessment �

125 Forecasting the Value and Risk of Woolworths Holdings Limited �

135.1 Factors affecting growth rate and risk over next 7 years. �

135.1.1 Interest rate rise increases risk of bad debts �

135.1.2 Increasing interest rate and inflationary pressure on discretionary spending �

145.1.3 Factors affecting Terminal Growth Rate of Woolworths Market �

155.1.4 Estimating the period of Super-Growth �

165.2 Summary of forecast variables �

175.3 WHL Share Valuation by means of Monte Carlo Simulation �

186 Recommendations for Managing Risk �

227 References �

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"A good company is not necessarily a good investment, because the share of a good company may be priced too high. Likewise, the share of a bad company may be overpriced"- Johan Marx.

Executive Summary

The basic principle of investing is that the investor should be rewarded for the risk that is taken when investing into financial instruments.

The Johannesburg Stock Exchange building.

Figure 1

Figure 2

There are many definitions for the term "risk"; Holton (2004) defines risk as the uncertainty of a negative event occurring coupled with an exposure to the event. Therefore the probability of a loss and exposure to the loss are characteristics that are prerequisites for risk to be present. Efficient financial markets display all the relevant public market information within the price of a financial instrument and therefore investors believe that all relevant risks are discounted for within...