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WES - WESFARMERS LIMITED


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4Q08 Coal Production Exceeds Guidance

A positive outcome - Wesfarmers 4Q08 coal production was above our expectations. The division has recovered strongly from the Curragh flood disruption in 3Q08, with coking coal production significantly exceeding Wesfarmers' earlier guidance. The result adds upside risk to WES coal earnings, with the timing dependent on the level of carryover tonnage.

 

4Q08 production higher - Curragh's coking coal volume rose 34% and was 500k tones ahead of our expectations. Curragh's thermal coal production fell 11%. Bengalla reported production up 50%, but Premier's output fell 5% given reduced sales to Verve and Iluka following the Varanus gas disruption.

 

Curragh exceeds guidance - WES' Curragh mine reported strong 4Q08 production, boosting its total FY08 output to 6.9m tonnes. Some of the additional coal was produced ahead of planned maintenance shutdown. The result exceeds WES' FY08 production guidance of 6.1m-6.5m tonnes.

 

Earnings sensitivity - The earnings impact from extra coal production will depend on the carryover tonnage to meet existing contract volumes. If sold at JFY07 prices, each 500k tonnes in coking coal sales would add $20 million to EBIT. If sold at JFY08 prices, each 500k would add $40 million to EBIT.

 

Our view - WES' FY08 coking coal production was strong. The company is well positioned to benefit from the record coal prices in both the coking and thermal coal markets. We forecast the Coal segment's EBIT to more than treble to $1.4 billion in FY09e, providing cash flow and dividend support over the next year.

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In reply to: wolverine on Thursday 24/07/08 09:42pm

Hi Wolvie, I assume that you own WES shares (your post is suggesting it). I think it might be a good time to venture and buy a few WES even if there is a risk with Coles performance, but the versatility of WES is very attractive. Regards Daggie (I think I'll get in and buy some). http://www.sharescene.com/html/emoticons/wub.gif

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In reply to: daggie on Friday 25/07/08 10:21am

superfund has a swag of them.

 

i don't know whether i like em to death right at this point but if they get coles working they are a very well placed company with coal and defensive earnings.

 

for the superfund they seem to yield well and looking out 5-10yrs we will probably be grinning from ear to ear.

 

my dad has more say in how invested the SF is since it is largely his money in there and he tends to listen to less of the market noise and keeps his eyes on longer term issues. this has served him very well.

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In reply to: wolverine on Friday 25/07/08 12:37pm

I must admit that your view of 5 years or more is longer than mine. Our timeframe for share holdings is something like 12-15 mths (corresponds to our age and there are limits to it, being 63 years old). Thanks and all the best. D.

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QUOTE (daggie @ Friday 25/07/08 05:33pm)

hi daggie

 

old man wolv is more like 70 and he isn't planning on stepping off the twig any time soon. taking the divs while waiting for the capital appreciation suits him just fine.

 

you are just a young whipper snapper.

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  • 2 months later...

Couldn't resist and bought WES today @$21.99. Last time I had WES I sold at just over $40. At the time I would never have dreamed of getting back in at this price.

 

How the world has changed.

 

Given time and the right management, $40 can come again, with nice dividends on the way - that's my aim anyway.

 

Norm C

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In reply to: normc on Monday 13/10/08 11:09am

likewise Normc, Couldn't resist. Sold some to satisfy a margin call last week and bought back in cheaper today. If Wes pay the $2 div they promised as part of the CML takeover deal then the Divy will cover margin loan interest. The capital gain on recovery will be icing on the cake.

 

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Wow, sentiment is really against WES at the moment. A drop of 11% today was way overdone, so decided to jump on board at the end of the day for a small trade.

 

I am looking to Buy a good chunk for a LT investment.

 

The Coles MD seems to think the recovery of Coles will take 5 years.

 

WES share price is now being significantly discounted for future drops in growth. For those that are patient, prudent Long Term Investors i believe WES would be a valuable investment.

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