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  • 3 months later...
  • 6 months later...

IF one were to take the fundamental position that the US will lift it's indebtedness before August 2nd it might be reasonable to assume our market may display some upsides for the time being, especially the top 20.


That being the case, WES may have a 10% profit potentiality through an entry at these levels. Chart enclosed.


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  • 6 months later...

Initial thoughts

Overall we expect the market to be slightly disappointed with the 1H12 profit result. NPAT (pre-NRIs) was 3% below our forecasts driven primarily by weaker than expected EBIT from the Coles and Resources divisions.

  • We expect the market to focus on EBIT momentum within the Coles Food and Liquor division which was +12% (this compares to c.20% for the last 3 halves). WES highlighted some issues within its liquor business which have now been rectified, and we also note the strong growth within the Coles Convenience business meant that total Coles EBIT growth was closer to our expectations at 14%. The market will focus on whether this solid but lower than expected growth is likely to be maintained in the medium term.
  • We expect modest downward revisions to consensus EPS forecasts.
Result details

  • Group Sales - Up 6% to A$29,674mn (Goldman Sachs A$29,663mn)
  • EBIT (pre NRIs) - Up 4% to A$1,967mn (Goldman Sachs A$2,491mn)
  • NPAT (pre NRIs) - Up 4% to A$1,203mn (Goldman Sachs A$1,238mn)
  • NRIs - The result included A$27mn of post-tax costs that we consider to be non-recurring. This relates to the following items (pre-tax): (1) Goodwill impairment charge for Coregass assets (A$181mn); (2) Profit on the sale of enGen (A$43mn); (3) Profit on the sale of Premier Coal (A$92mn); and (4) Profit on sale of Boddington forestry assets (A$16mn).
  • EPS (pre NRIs) - Up 4% to A104.1ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ (Goldman Sachs A106.7ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢)
  • DPS - Interim A70ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ (Goldman Sachs A69c), pcp A65ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢
  • Gross Operating Cash flow - Was strong, up 17% to A$2,826mn and was 115% of EBITDA (pcp 103%). Cashflow was aided by a working capital release driven by a significant improvement in trade creditors.

Divisional details

Coles - 1H12 Sales rose 7% to A$17,218mn (Goldman Sachs A$17,258mn). EBIT Up 14% to A$656mn (Goldman Sachs A$666mn). EBIT margin rose 23bp to 3.8%. As highlighted above we expect the market to be disappointed with growth from this key division, in particular the key Food and Liquor business (+12% EBIT growth).

  • Home Improvement and Officeworks - 1H12 Sales rose 5% to A$4507mn (Goldman Sachs A$4,5198mn). EBIT Up 6% to A$519mn (Goldman Sachs A$518mn). EBIT margin rose 8bp to 11.5%
  • Chemicals, Energy and Fertiliser - 1H12 Sales rose 14% to A$775mn (Goldman Sachs A$704mn). EBIT fell 10% to A$99mn (Goldman Sachs A$85mn). EBIT margin fell 338bp to 12.8%
  • Target - 1H12 Sales fell 3% to A$2060mn (Goldman Sachs A$2,085mn). EBIT fell 10% to A$186mn (Goldman Sachs A$192mn). EBIT margin fell 69bp to 9%
  • Kmart - 1H12 Sales fell 2% to A$2236mn (Goldman Sachs A$2,238mn). EBIT Up 13% to A$197mn (Goldman Sachs A$177mn). EBIT margin rose 110bp to 8.8%
  • Resources - 1H12 Sales rose 14% to A$1087mn (Goldman Sachs A$1,157mn). EBIT fell 0% to A$250mn (Goldman Sachs A$308mn). EBIT margin fell 312bp to 23%
  • Insurance - 1H12 Sales rose 8% to A$945mn (Goldman Sachs A$880mn). EBIT fell 74% to A$17mn (Goldman Sachs A$17mn). EBIT margin fell 566bp to 1.8%
  • Industrial and Safety - 1H12 Sales rose 9% to A$843mn (Goldman Sachs A$813mn). EBIT Up 23% to A$97mn (Goldman Sachs A$83mn). EBIT margin rose 130bp to 11.5%
  • Other - 1H12 EBIT was A$-1mn (Goldman Sachs A$10mn). This excludes the NRI's detailed above.
  • Corporate - 1H12 corporate costs were A$53mn (Goldman Sachs cost of A$49mn).
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  • 4 weeks later...


Deutsche Bank rates WES as Hold (3) - Deutsche Bank analysts have issued a cautionary note on Wesfarmers, warning investors it appears the Coles turnaround is now largely priced in, leaving little room for disappointment. Their conclusion is that even if (and that is still an "if") management at Coles can bridge the gap with Woolworths completely, this would only translate into minimal further upside for the share price. Price target remains at $28 (which is below the current share price). Rating remains hold. Estimates have been left largely unchanged.


The company's fiscal year ends in June. Deutsche Bank forecasts a full year FY12 dividend of 180.00 cents and EPS of 195.00 cents . At the last closing share price the estimated dividend yield is 6.28%.

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  • 1 month later...

While it is good to see growth, the market will mark WES up or down depending on whether expectations were met for each sector, and whether they are gaining on/ pulling away from WOW in the specific sectors


Always it seems one of the divisions has some challenges - this time it is Target.

Coal seems to be dropping - contracts reflecting 11% decrease for this quarter.


the number that astounds me is for total Coles Express sales, including fuel, for the quarter were $1.8 billion, an increase of 7.9 per cent on the previous corresponding period. - this division now Bigger than Bunnings ! (of course the margins may not be as good.)

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