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WES - WESFARMERS LIMITED


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the smart WES shareholders at the last 1 for 8 accelerated pro-rata non renounceable entitlement offer in May 2008 didnt takeup the offer at $29

but ended up with $9.75 for each share they didnt take up

 

this time around at the 3 for 7 accelerated pro-rata non renounceable entitlement offer at $13.50 the option above doesnt exist so if you dont take it up you will be diluted for no compensation

 

the slippery slope 1 for 8 at $29 ; 3 for 7 at $13.50

 

resources division contributed 18% to ebit in FY08 ; Coles group 62% - both facing earnings pressure and writedowns

 

dividend halved

 

if WES didnt have short selling protection because of its insurance division where would its share price be ? - ban extended to 6/3/09

 

seems that $13.50 may not be much of a bargain

 

will see what it re-lists at on 27/1/09

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Why do you conclude Coles is facing earnings pressure? I think that in uncertain economic times food retailing is generally considered to be a safe haven relative to other businesses. Coupled with this Coles have a new management team who still believe they can kill the pig with Coles, and so far they have stayed on message with this view. Even if they can't kill the pig, there is not much doubt they can do significantly better than the previous try hards running Coles. In fact the main difference between Coles and Woolworths is Woolies have had good management for the last 20 years, Coles have only had good management for the past 15 months.
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this is one I had on watch but didnt buy as it did appear to be too good to be true by way of yield.as it turns out it was.

as for coles management I think the jury is still out on whether current management are good or not.just mho. early days still in a market that will test them well.

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the market treated them pretty well today $16.40 - +$2.90 above the $13.50 offer

 

though we have seen this before

 

where it holds (who holds it up ?) above the entitlement level to encourage the retail investors to write their cheques at $13.50/share before close of 23/2/09 (even WES is assuming only a 15% take up)

 

$2Bn - issue of new shares institutional entitlement offer($1.55Bn at $13.50 - 114.8M shares) & institutional bookbuild (30M shares at $15) on 6/2/09 ( Institutions = your superannuation)

 

plus Placement $900M at $14.25 - 63.16M shares

 

Total $2.9Bn - extra 207.96M new shares

 

probable that there will be a sell off slowly from 6/2/09 but accelerating after 23/2/09 so if you take up the offer at $13.50 that is what the share will be selling at (or less) by 3/3/09

 

issue of new shares retail offer 3/3/09 - however many that is ?

 

WES 3B expecting up to 349,514,090 new shares to total 1,013,079,858 + 151,967,108 Protected shares

 

hard to think of too many strengths or opportunities

 

strengths

- now reduced debt funding rollovers over next 2 calendar yrs to only 1.6Bn - at least it is being proactive - better management than OZL

- in the Needs market - Food (Coles) and the other retail divisions

 

weaknesses

- still carrying a lot of debt - servicing costs

- kmart, target , officeworks, bunnings exposed to consumer spending drought - falling income

- coles food liquor still catching up - WOW and MTS competitors - more ongoingi nvestment required

- resources - coal pices are weakening - falling income

 

Threats

- short selling ban to be lifted 6/3/09 - will drive share price down

- resources - more price falls probable - 18% ebit contribution will fall quickly

- breach of debt covenants ( mostly not disclosed to the market) - crisis

 

 

Is WES too big or important to be allowed to fail ?

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I agree with most of your comments, accept for one thing. You list Bunnings as exposed to consumer spending as a weakness. I disagree with this. In down times, it is not uncommon for people to spend more time at home and as a result they decide to improve their home. now as money is tight, most people begin to do more things themselves. Instead of paying someone to come and paint their house, they paint it themselves, instead of getting in a landscaper, they doit themselves.

 

I saw a story recently on Mitre 10, which said that in Sydney, the businesses strogest growth period in history was during the last depression. So Bunnings could potentially remain relatively strong. As Bunnings has a lot more discretionary items on their shelves than say Mitre 10 would have had in the past, yes they will be exposed to a down turn in discretionary spending, but I expect it to be relatively insignificant.

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I reckon WES is just being propped at the moment

 

(a) To get the rights issue thru

(b) To allow the funds to sell off at the higher price so they can get rid of the stock and rebuy cheaper in the rights

 

 

This is typical of them propping up the stock above $40 just to get the CML deal thru then it fell apart ;)

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having had to find a bunnings receipt recently for a warranty I noticed that it was mostly unreadable even though kept out of the light in a drawer for 9 months

 

 

a good analogy for the WES share price - as long lasting as a ........

 

 

 

AJ007 - the DIY crowd you see in bunnings dont buy as much as the trades do or did

 

 

 

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