The Woolworths quarterly sales update leads with the fairly bearish sounding pull quote of “most challenging COVID quarter”.

The supply chain issues are writ large in the quarterly and half yearly results commentary everywhere (e.g similar messages over the US reporting season, which is playing out now) and are obvious hurdles to maintaining margins.

The second important piece of news is the completely unsurprising slow down in food sales, as COVID reopening means people spending a larger share of wallet on things other than eating, specifically, eating at home.

However, this unsurprising combination of themes (supply chain issues, slowing food sales)) does not appear reflected in the multiples people are willing to pay for the business, to our mind.

COVID beneficiaries, especially defensive COVID beneficiaries, are quite expensive as a strategic theme, and, we think WOW fits firmly into that category.

We think COL is quite a bit cheaper, for essentially the same characteristics, but in general we are underweight the sector on valuation grounds, and earnings trajectory assumptions.

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