WLD - Wellard Limited

[System]

Wellard is an integrated agribusiness that connects primary producers of cattle, sheep and other livestock to customers globally through a vertically integrated supply chain.

Wellard sources livestock globally where production is surplus to domestic requirements (e.g. Australia, Brazil and Uruguay) and sells livestock and meat to customers in markets where demand exceeds local production (e.g. China, Indonesia, Vietnam, the Middle East and Turkey).

To support its operations, Wellard owns or controls critical and specialist infrastructure at various stages of its supply chain, including strategically located pre-export quarantine facilities and a fleet of purpose-built livestock transport vessels.

It is anticipated that WLD will list on the ASX during December 2015.

http://www.wellard.com.au

 

[chops_a_must]

I'll be watching with interest, but anything involving live exports presents substantial catastrophic risks for shareholders imo.

 

[So_Cynical]

Only found this stock a couple of days ago, excited straight way by the 44% SP decline since floating in early Dec 2015 decline was recently accelerated because of 2 ship breakdowns that will result in some prospectus targets (8.4%) getting missed.

Wellard sell protein to Asia and the middle east, a vertically integrated farm gate to destination port supplyer of on the hoof and frozen red meat into the fastest growing markets on earth, 4 ships (1 under construction), 5 pre export facilities, 1 feed mill, and a JV to build a large processing facility in China..not often you see this much vertical integration, 500M+ in annual revenues, 30+ year history.

Bought a lot of shares today (backed the truck up) for my main account and Super account, WLD was added to the ASX300 index in the March rebalance...in big time at 0.785
~

 

[So_Cynical]

New ship added to the fleet increasing fleet carrying capacity by 50%

http://www.asx.com.au/asxpdf/20160428/pdf/436ssv94h0zk5r.pdf

The MV Ocean Shearer is largely based on the proven and successful design of Wellard’s MV Ocean Drover. It has the capacity to transport 20,000 cattle or 75,000 sheep or a combination of both, and is suited to trans-hemisphere routes.

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SP consolidation over the last month around the 75c mark.

 

[skc]

2 profit warnings since IPO is pretty bad.

2nd profit warnings within about 7 days... that is surely a record?!

What do they use for planning and scheduling? Pen and paper?

How do they transport the cattles to the ship? Billy Crystal? Or Russell Crowe the Drover?

 

[So_Cynical]

2 profit warnings since IPO is pretty bad.

2nd profit warnings within about 7 days... that is surely a record?!

Reading between the lines there seems to be some variation in profitability per shipment, the new ship increases capacity by 50% and its to be expected that a 50% increase in throughput will take some ramping up.

Bought some more today, hold across all 3 portfolios now.

 

[VSntchr]

2 profit warnings since IPO is pretty bad.

2nd profit warnings within about 7 days... that is surely a record?!

What do they use for planning and scheduling? Pen and paper?

How do they transport the cattles to the ship? Billy Crystal? Or Russell Crowe the Drover?

SKC - your cracking me up today!
Are you sure you didn't slip some of MXC product into your morning coffee?

For the record attempt, they have somewhat flagged that they may break it by downgrading again within the next few weeks.

Not expensive now that it has plummeted to ~40c but the balance sheet shows debt is now larger than market cap - not a great stat to own.

 

[skc]

SKC - your cracking me up today!
Are you sure you didn't slip some of MXC product into your morning coffee?

For the record attempt, they have somewhat flagged that they may break it by downgrading again within the next few weeks.

Not expensive now that it has plummeted to ~40c but the balance sheet shows debt is now larger than market cap - not a great stat to own.

Here's the thing... there is probably nothing fundamentally wrong with the business. They buy cows, prep them then ship them. How hard can it be. That is their business for many many decades. Sometimes they make more, sometimes they make less. Sometimes they do it efficiently, sometimes they lag behind schedule a bit. Sounds like a normal business.

But when you have these in a listed business, where analysts care about forecasts and investors care only about next half's earning... you create a highly volatile share price. If this is a private business... it misses a shipment in FY16 which gets made up in FY17, no owner will bat an eyelid. The banks wouldn't care that much and there's no market cap to compare your debt against.

May be in a few more period's time, the company will get the hang of better forecasting and better communication of such forecast. Float a number out there that would be revised in 6 days while warning possible further revision is not how one should approach ASX announcements. Seriously, they must have heard of under-promise and over-deliver.

P.S. You have to be wary of companies who report perfect numbers that are within 0.2% of consensus forecasts. It shows nothing except that management can massage the numbers to suit their needs. A good prompt to look deeper.

 

[Cashflows]

I will say that looking through the past few annual reports, I don't there was one year where they didn't have some sort of incident or break down eg.

2013:
Shipping capacity was further curtailed by the unscheduled dry docking of the MV Ocean Drover and MV Ocean Outback for 60 and 30 days respectively, for unplanned repairs and maintenance resulting from damage incurred by both these vessels at sea.

2014
a fire occurred on the mc drover causing damage to the bridge and accommodation area... one employee required hospitalization...

2015
the loss of the mc drover carried into march 2015 which required the company contract out their shipping commitments to a third party.

2016
two of the group's vessels experienced mechanical breakdowns.

Anyone know the age of these vessels? Their replacement cycle? I'll have to look through the report's more I think.

I'd also like to point out that every year of financial results available have WLD making a loss. Moreover, I think there is no small risk present in the form of the live export bans.

That said, the macro side of the business certainly has some strong tail winds in the form of a lower AUSD and record low oil prices. It should benefit quite strongly from the FTA with china, as seen from the JV with Chinese Fullida Group. I think the purchase of the Livingstone land parcel in NT is part of that strategic push to service China's growing market.

On a micro/short term profitability note I'd like to point out that a large part of the recent downgrade appears to be because of rescheduling of delivery contracts on either side of the financial year. I think if they don't make money this side of the FY then it just means they'll make more next FY. A few days makes a big difference in terms of accounting profit, but I don't think it really matters when you think like the owner of a business.

I think that long term this business has a good macro outlook with its focus on servicing the Chinese markets. in the short term it should benefit from reduced costs of doing business (aside from the current high cost of Australian produce and excess alternative supplements in the middle east) and increased shipping capacity. However, it presents a very real risk in the form of live exports, and the high volatility in its earnings will inhibit a consistent growth of the share price.

But then I'm most likely wrong haha

 

[rcm617]

Well worth looking through the prospectus for the ipo. PWC were of the opinion that there were doubts that Wellard could have kept continued as a going concern if it were not for the money injected by the ipo due to them not being able to pay debt that was due.
Also financial covenants stipulate interest be covered 2 times by earnings.
Vietnam is their second biggest customer, so the present animal rights furore could adversely affect them.

 

[So_Cynical]

Here's the thing... there is probably nothing fundamentally wrong with the business. They buy cows, prep them then ship them. How hard can it be. That is their business for many many decades. Sometimes they make more, sometimes they make less. Sometimes they do it efficiently, sometimes they lag behind schedule a bit. Sounds like a normal business.

But when you have these in a listed business, where analysts care about forecasts and investors care only about next half's earning... you create a highly volatile share price.

Yep my thoughts exactly, perfect for someone like me to build a position on the downs, and take profits on the up swings thus build a dividend stream.

financial covenants stipulate interest be covered 2 times by earnings.
Vietnam is their second biggest customer, so the present animal rights furore could adversely affect them.

Perhaps a capital raising to come, certainly no dividend this financial year, a little surprised that the SP held up ok today on the Vietnam news, sellers must surely be exhausted by now.

 

[Cashflows]

This is getting very cheap..

If they can achieve their forecast earnings of $46.4 next year (their stated forecast for this year) then they will be trading on a forward P/E ratio of 2.8 - and that isn't including the potential benefit of the 50% increase in shipping capacity offered by the Ocean Shearer.

It may be a no brainer but one question I have that I hope others could answer is whether or not the ocean shearer will result in a similar or greater uplift in profits? The reason I ask is if they see a much greater increase in shipping capacity then I wonder how much pressure that would put on their sourcing and procuring operations. Eg Australian cattle producers are more focused on herd restocking - so supply has decreased and the cost has increased. Another indicator that made me question it was their decision to delay the delivery date of the Ocean Kelpie - pushing it back well over a year with the comment '...and time the entry with more favourable market conditions than the original schedule. by the time the M/V Ocean Kelpie commences operations we expect the Chinese market to be in full swing, cattle availability in Australia to be improved and a better balance between supply and demand.”

I could be wrong but it made me wonder...

Also, does anyone know what sort of capital commitments would be required for the Wellao JV? The only thing I could find was an interview with the ceo where he said '"We are going to have a state-of-the-art facility in abattoir and feedlot, so it will be tens of millions of dollars that Wellard will invest together with Fulida in China."

Here is the link: http://www.abc.net.au/news/2015-08-...d-joint-venture-china-fulida-abattoir/6695624

 

[McLovin]

Interesting write up about the WLD saga in the AFR today.

Wellard bought or leased five transporters, including the world's largest purpose-built livestock carrier. The company can ship 60,000 cattle or 224,000 sheep from Fremantle, Townsville and Darwin to just about anywhere in the world, meaning Wellard can't be squeezed by the shipping companies hired by exporters which charge $US10,000 to $US50,000 a day.

One of the skills of shipping cattle and sheep is finessing pick-up and delivery schedules. If a customer, such as a food producer in Kuwait, wants 20,000 sheep to arrive a few weeks later than originally agreed, an exporter may have to renegotiate access to a transport ship.

Shipping owners, dominated by the 120-year-old Dutch Vroon group, are adept at exploiting last-minute changes to jack up lease rates. Wellard avoided this problem by taking out long-term leases and building ships. The latest, the nine-deck Ocean Shearer, joined the fleet a few months ago.

None of its Australian competitors own ships and Wellard promoted the fleet as a key advantage over rivals. "Vessel ownership provides flexibility to take advantage of higher margin opportunities," the prospectus said.

But the strategy wasn't cheap. Wellard's latest ship, the Ocean Shearer, was built in China for about $US90 million. A single shipment of around 20,000 cattle is roughly worth $20 million.

...

Developing economies are buying more beef, but growth isn't rapid. Global beef consumption grew 1.1 per cent a year from 2004 to 2014.

Squeezed bulls

Paradoxically, a boom in cattle prices was bad news for Wellard investors.

After a few years of little rain that depleted cattle herds in Queensland, many graziers decided to build up their stocks instead of selling.

With little supply available, the price skyrocketed. The Eastern Young Cattle Indicator beef benchmark hit $7.26 a kilogram last month, its highest ever.

Operating large ships it couldn't afford to leave empty, Wellard desperately needed cattle. It became the most aggressive buyer in the market, according to three industry sources, and would offer 5 to 15 per cent more than its competitors, one of those sources said.

...

In Indonesia, China and elsewhere, consumers aren't wealthy and couldn't afford to pay more for cattle from Australia. The company couldn't pass on its price increases to its customers, the industry sources said, and was forced to accept lower profit margins.

Wellard was caught in the classic traders' squeeze: forced to buy from reluctant wholesalers and sell to price-sensitive consumers.

Read more: http://www.afr.com/markets/equity-m...ons-for-ceo-ubs-20160913-grfel8#ixzz4KeluY1gx

High fixed cost base, leverage and an controversial industry. Not exactly where you want to put your money!

 

[joeno]

Interesting write up about the WLD saga in the AFR today.

Read more: http://www.afr.com/markets/equity-m...ons-for-ceo-ubs-20160913-grfel8#ixzz4KeluY1gx

High fixed cost base, leverage and an controversial industry. Not exactly where you want to put your money!

These guys made 50m profit on 500m revenue. Seems like good money to me.

 

[Ves]

High fixed cost base, leverage and an controversial industry. Not exactly where you want to put your money!

Am I reading that correctly that they actually take ownership of the cattle? So they're not really a transport business like I assumed, but a transport business with additional capital risk. And shipping to poor countries? What if the destination buyer doesn't pay?? Is there a big credit risk here?

Also assuming that despite avoiding the shipping cost imposts of the majors by owning their own ships that they still have the difficulty of dealing with the last minute schedule changes of their customers and need to be flexible with what ships are available at any given time. That sounds like a nightmare. Almost guaranteed it's impossible to run at full utilisation, right?

 

[So_Cynical]

High fixed cost base, leverage and an controversial industry. Not exactly where you want to put your money!

Im totally fine having my money in this, would of liked to have paid a little less but thats how it works for the contrarians.

High fixed cost base - would apply to all industry participants, leverage in a time of historic cheap leverage, a growth industry selling protein to a developing world, the middle class eat more protein than the poor.

WLD now my largest holding, own it across all 3 portfolios and largest holing in all 3, im rolling the dice on this one.

 

[joeno]

WLD now my largest holding, own it across all 3 portfolios and largest holing in all 3, im rolling the dice on this one.

What do you think is an appropriate price target for WLD? Also any ideas why it jumped 25% today out of the blue.

 

[So_Cynical]

What do you think is an appropriate price target for WLD? Also any ideas why it jumped 25% today out of the blue.

The Mods dont like price targets and i dont have one anyway, chart would indicate that the 77c level had some support at one point but then so did 39c, price pop on today's 15.8 million announcement, they needed some cash and now will get some...what will be will be.

There was a contrarian (of sorts) fund manger on sky business last week, when asked for some good advise he said "buy cheap and buy lots" a simple yet effective strategy as long as you are buying a good thing.

 

[Triathlete]

What do you think is an appropriate price target for WLD? Also any ideas why it jumped 25% today out of the blue.

Technically this stock is still in a downtrend.....might need to close above 37 cents before taking another look at it.....just my own view.

It is at present in a distress state fundamentally also

 

[McLovin]

Am I reading that correctly that they actually take ownership of the cattle? So they're not really a transport business like I assumed, but a transport business with additional capital risk. And shipping to poor countries? What if the destination buyer doesn't pay?? Is there a big credit risk here?

I actually thought the same as you, that the company was just transporting livestock not trading it. it's not a complex business but the capital structure needs to be right. You can't scale up and you can't scale down quickly.

I'll take a wild guess that the animals are shipped once a letter of credit has been provided by the customer's bank.