Woollies a great business but decisive action needed

John Murray from Perennial on whether Woolworths represents value or a value trap (from the AFR): "Woolworths is one of the most interesting stocks in the market at the moment. Management have clearly taken their eye off the ball in recent times, with the company effectively "over-earning" and allowing new competitors to gain share at their expense. Further, they have been distracted by the roll-out of their struggling Masters hardware chain. As to the outlook, international experience such as Tesco in the UK suggests that the road back from these situations is long and hard and requires a significant rebasing of earnings down. However, every market is different so it may not play out the exactly the same here. With the share price having fallen by more than 20 per cent over the past year, much of this is already reflected in the price. Fundamentally, Woolworths is a great business but what we are looking for is decisive action by management and we will probably have to wait for the new CEO to see whether we get this."