WBA - Webster Limited

[craft]

Re: WBA - Webster

The company has negative cash flow for 5 / 6 years: 2009, 2010, 2011, 2012, 2014.
In most of years, the "Receipts from customers" can barely cover "Payments to suppliers and employees".
Anyone has a clue on this??

Yep that is correct - They have stayed about cash break even operationally. But to understand the merits of WBA you need to recognise the significance of that achievement produced from an immature orchard that they have also been expanding rapidly (both size and vertically) and then consider the competitive advantages they have as the major southern hemisphere owner of a maturing orchard and cracking facility.

WBA has also morphed over those 5/6 years into a focused vertically integrated walnut business. Though the new acquisition (50% water rights to secure the permanent walnut tree water requirements) will take them into row cropping in the wet years.

IMO - a good story if you dig into it.

 

[craft]

Re: WBA - Webster

WBA has also morphed over those 5/6 years into a focused vertically integrated walnut business.

Scratch that.

The walnut business that I brought into still exists (the only thing they haven't sold off) and its still a good little business IMO. But with the latest announcements WBA has morphed way beyond just Walnuts.
The recent Kooba acquisition nearly doubled the size of the balance sheet and the proposed Bengerang acquisition and Tandou (TAN) bid will over double it again and make it an ASX300 size company with the largest portfolio of water rights in Australia and a massive cropping grade land bank.

My problem is that this business is now something I don’t fully understand, but a play thing for the directors and major shareholders (Chris Corrigan, David Crushing, David Robinson, Pete Joy, Verolot)
Most of the above directors/shareholders are on both sides of the latest transactions – So the potential for conflict is large.

Not sure what to do with current holding –Against my normal approach to investing but I’m very tempted to hang on blind for a while and coat tail what to me is a formidable directorship with aligned shareholdings building the type of agricultural exposure that I want and is currently not available elsewhere on the market. But there are risks (and rewards) I never foresaw when buying into the Walnut business. Investing is never dull.

 

[craft]

What a tangled web. Some notes to help me remember what I dug up on the relationships of the latest transaction proposal.

David Robinson was a former chairman of Webster around 2006-2008.
On 14/11/14 He received a placement of 17,475,728 WBA shares as part of the Kooba Acquisition for $1.03 cash. (Market price $1.14)
27/2/15 proposed that he will receive 36,548,806 WBA share @ $1.15 for the Bengerang transaction (Market price $1.33)

Bengerang was born out of the remnants of the listed PrimeAg and have five private owners: David Robinson; Chris Corrigan; Verolot; Eagle Securities & Kaplan

Verolot is a mystery to me but it is a related party because it has a substantial holding of 13,299,781 in WBA and will receive another 18,916,081 @ $1.15 via the Bengerang transaction.

Kaplan will receive 30,434,783 WBA shares @ $1.15 via the Bengerang transaction. Kaplan is a private equity fund manager which Chris Corrigan is chairman of.

Eagle Securities is on the WBA register with 4,934,792 shares. They will receive 3,854,369 WBA shares @ $1.15 via the Bengerang transaction. Eagle securities also recently purchased 10% of Tandou @$0.44 from David Cushing(WBA director and substantial Holder) for those TAN shares they will receive 8,748,889 WBA shares. Eagle Securities is a Virgin Islands mystery broker but rumours abound relating it to Chris Corrigan.

Peter Joy owns 17,481,039 WBA shares and will receive 6,705,050 WBA shares via the TAN transaction. Peter Joy has a residential address in London as does Chris Corrigan – I recall hearing somewhere that their wives are best friends from way back, not sure if that is true at all but it would explain how Chris Corrigan first got involved in little ol' WBA.

David Cushing is a director and shareholder of NZ agriculture investment company Rural Equities. He owns 11,431,136 WBA shares and will receive 9,640,706 WBA shares from the TAN transaction.

Chris Corrigan owns 23,837,637(thanks to another discounted placement) in WBA and will receive 17,916,081 WBA share @ $1.15 for the Bengerang transaction. He may or may not have influence over / interest in the eagle securities holdings and the Kaplan Holdings.

Rod Roberts and Simon Stone don’t strike me as directors that champion minor holders interest and the other two directors are new, so don’t know anything about them.

Conclusion – Webster is not what you would call a minority shareholder focused company.

However, the Bengerang and TAN related party transactions are for WBA shares not cash and the competing self interests of the major players who will all have major personal stakes in WBA following the transaction is probably the best safeguard against being raped by a dodgy related party transaction. – Unless they are all in cahoots.

I’m still inclined to coat tail their self interests as I like what is being built (ASX 300 Company with high quality agricultural land & water entitlements) even though I have doubts about their commitment to minority holders in the process.

 

[Ves]

Conclusion – Webster is not what you would call a minority shareholder focused company.

Thanks for the comprehensive notes on this one. I still do follow it, and have a look from time to time, but my initial analysis is becoming more and more redundant over time, due to the increasing complexity (and diversity) of the business model.

I'm not a big fan of acquisitions / mergers like this. I think they've gone from 150m shares issued to about 350m. That's a very large increase... especially when, as you said, minority shareholders are most likely (or almost certainly) diluted in the process. Even worse if they are using potentially undervalued currency (their own shares) to acquire other companies.

I echo your thoughts on agricultural exposure via listed entities, it is damn hard to get quality exposure at all, let alone those within my circles of competence.

 

[craft]

I'm not a big fan of acquisitions / mergers like this. I think they've gone from 150m shares issued to about 350m. That's a very large increase... especially when, as you said, minority shareholders are most likely (or almost certainly) diluted in the process. Even worse if they are using potentially undervalued currency (their own shares) to acquire other companies.

Hi Ves.

That’s the key question. Have I given up more in the value of the walnut business then I have gained in value of the new assets?

I thought the walnut business was an underpriced ripper of an asset. It now however represents about a quarter of the business – however the new assets in some cases complement, via supplying suitable land in the right geographies for new orchards and secure water rights. The combination of permanent plantings and annual crops to best utilise water rights depending on varying water allocation makes lots of sense.

The discounted placement that has occurred to get Chris Corrigan and David Robinson on board is a bit disturbing – but they also bring a lot to the table in the form of financial clout and also agricultural operational knowledge in Robinsons case.

Webster’s transformation is only possible because of the key players now backing the company – and they have significantly tied themselves to the company’s success.

I don’t know the quality of the new assets yet, which is a problem in holding but the Walnut business that I do understand is enhanced and I’m going to be eating the same cooking as the key players on the new assets so I will stay in as I try to come up to speed with the new assets. Ideally I would step aside for a while until I fully understood the quality of the new assets, however that would crystallise a pretty big tax liability - bigger than the risk of staying in as I currently see it.

Maybe I should ask for a farm stay in their new farm house for research purposes

 

[Ves]

In a sense (but not to the same degree) this is similar to why I keep holding RFG. I think the way they approach capital raisings advantages the bigger holders, but for now the smaller holders have been taken along for the ride due to the fantastic quality of the underlying assets.

For your sake I hope the guys pulling the strings at the top keep carrying along the minority shareholders for the ride.

I see SHV is planning on buying some more assets as well. It appears that their are plenty of opportunities to expand both organically and by acquisition for the bigger agricultural firms in Australia. In that respect you can read my comments in the context of a double edged sword.... it's all about the price they pay when expanding.

Thanks for bringing this to my attention when it was about 40 cents. I haven't made any money, but I felt like I've learned a lot following the story.

 

[craft]

In a sense (but not to the same degree) this is similar to why I keep holding RFG. I think the way they approach capital raisings advantages the bigger holders, but for now the smaller holders have been taken along for the ride due to the fantastic quality of the underlying assets.

For your sake I hope the guys pulling the strings at the top keep carrying along the minority shareholders for the ride.

I see SHV is planning on buying some more assets as well. It appears that their are plenty of opportunities to expand both organically and by acquisition for the bigger agricultural firms in Australia. In that respect you can read my comments in the context of a double edged sword.... it's all about the price they pay when expanding.

Thanks for bringing this to my attention when it was about 40 cents. I haven't made any money, but I felt like I've learned a lot following the story.

SHV is interesting – It has had a very good run on the market as a few good seasons have fallen in line for them and the inherent leverage in the business has worked to the bottom line. But as far as I’m concerned Olam has the competitive advantage in Almonds in Aus so SHV is not an optimum long term investment for me. I like WBA’s walnut business a lot more, clearly has the competitive advantage now in the southern hemisphere growing season. Not sure why – but I’ve never looked deeply into RFG – another mistakes of omission by the looks of its chart.

 

[craft]

WBA having another crack at $1.40 and has currently cleaned out the sell side. It will be interesting to see where the sell volume comes back in.

 

[craft]

As of Friday Webster has succeeded with its TAN takeover and the Benerang acquisition has also been approved by WBA share holders.

Coincidently WBA’s Enterprise Value is now basically identical to SHV at 814M. SHV is in the ASX200, WBA has no index representation at all YET.

WBA’s Market Cap 642M (SHV – 713M)
WBA’s Equity 363M (SHV – 262M)
WBA’s Price/Book 1.77 (SHV – 2.72)
WBA’s Price/NTA 1.80 (SHV – 3.06)
WBA’s Debt /Equity 47.2% (SHV 38.9%)

WBA is Australia’s largest Walnut producer with 90% of local production and competitive advantage in southern hemisphere growing season.

SHV is second largest Australian Almond producer with 19% market share. Olam has the competitive advantage for Almonds in southern hemisphere growing season.

WBA has enough water entitlements to sustain its current and future permanent walnut plantings under the most severe conditions. In the better rainfall years it has massive annual cropping acreage (mainly cotton) to utilise the excess water or it could sell into the water market if the price was right.

SHV estimates in its annual report that it owns water entitlements for approx 25% of its requirements and purchases the rest on market with duration between spot & 3 years.

Water is the biggest variable in orchard production costs – SHV is highly leveraged to it. Great in the good years, but it’s a double edged sword. As a long term investor I much prefer WBA’s water position.

On the 26th May in an announcement that wasn’t even marked as sensitive Richard Haire (Industry stalwart and most recently MD of Olam Aust) was made Executive Chairman of WBA. Existing Chairman Rod Roberts steps down but remains on board. Existing CEO steps down to become one of two division heads, the other divisional head being Joe Robinson who is an AFF executive and I assume is David Robinson’s son. Talk about a bloodless / efficient re-organisation. Just in case you missed the driving force behind the entrepreneurial reshaping of the business – Chris Corrigan signed the announcement on behalf of the board.

Webster is now entitled to compulsorily acquire of all of the outstanding shares in Tandou. Webster
expects to commence the compulsory acquisition process as soon as possible following completion of
the transfer of Tandou shares held by accepting shareholders under the Offer. Webster will also
proceed to issue Webster shares in accordance with the Offer within the next 7 – 10 days.

Could be some TAN holders looking to get out of WBA??? I've taken a bit of a punt and sold a few recently that I wouldn't mind replacing at lower prices if I get the chance.

 

[Vitalitd]

Thanks craft. Tracking this thread with interest (including a few shares). Is today's fall the TAN shareholder rebalancing you think? End of financial year?

The walnut competitive advantage was a long time in the making. Nice to see it coming together.

 

[craft]

Thanks craft. Tracking this thread with interest (including a few shares). Is today's fall the TAN shareholder rebalancing you think? End of financial year?

The walnut competitive advantage was a long time in the making. Nice to see it coming together.

Tan sellers were my theory, so I’ll stick with that – but who really knows?

I was selling again last week and whoever was buying felt very solid until they failed to turn up on Friday. Will they be back? They obviously didn’t seem to share my TAN share allotment theory? Or maybe they were holding it up to give the drop impetus when they stopped – I don’t know, everybody plays tactics.

Now I have two theories, Ex tan Holders on the sell and potential insto on the buy.

So usual story - price could do anything.

At $1.90+ I think Value is stretched on near term headline accounting numbers (integration costs and current cotton crop aint going to be flash) but infatuation with Corigan & co, Probable index inclusion and good long term big picture strategy could see it hold higher then I would hope for, but at some stage I’m sure I’ll get the an opportunity to rebuild back to a full position – I’m very patient.(actually that’s a lie but I do try to be patient)

 

[So_Cynical]

(21st-December-2008) Market Cap: 40,696,210

7 years after i started this thread and WBA now has a Market cap of 430 million, more than a 1000% increase in 7 years...im stunned.

From Carrots and Walnuts for f**k sake.

 

[skc]

Tan sellers were my theory, so I’ll stick with that – but who really knows?

I was selling again last week and whoever was buying felt very solid until they failed to turn up on Friday. Will they be back? They obviously didn’t seem to share my TAN share allotment theory? Or maybe they were holding it up to give the drop impetus when they stopped – I don’t know, everybody plays tactics.

Now I have two theories, Ex tan Holders on the sell and potential insto on the buy.

So usual story - price could do anything.

At $1.90+ I think Value is stretched on near term headline accounting numbers (integration costs and current cotton crop aint going to be flash) but infatuation with Corigan & co, Probable index inclusion and good long term big picture strategy could see it hold higher then I would hope for, but at some stage I’m sure I’ll get the an opportunity to rebuild back to a full position – I’m very patient.(actually that’s a lie but I do try to be patient)

Tried and failed to secure any borrow for WBA when there was a 6-9% gap in the TAN/WBA merger arbitrage. I thought about just buying TAN outright, but the time lag between accepting the offer and being issued with WBA shares meant that I can't risk a position large enough to be worthwhile.

WBA was very strong since announcement of the offer. It was either the market's endorsement of the deal, or an attempt to create a perception as such (to entice TAN holders to accept the offer). The broader agri sector was also strong during the period as well.

WBA is thin at the best of times so I am surprised that you are willing to give up some of your position. Although newbie ex-Tan holders might be uncomfortable with the WBA share price downward movement and sell into your waiting bids.

Interested to see how this plays out.

 

[craft]

WBA is thin at the best of times so I am surprised that you are willing to give up some of your position.

Its thicker than it used to be, but unless some of the director/dealmakers sell a few liquidity could still be an issue for institutional participation in the stock .

For me its more about my perception of value, risk and portfolio interaction then a primary focus on fancy short term footwork. I wouldn’t risk a long term position on being clever in the short run – but occasionally I get lucky short term when thinking long term.

 

[tge oracle]

An interesting article from today’s Australian reports on the impact “ El Nino “ will have on agricultural commodities and more importantly commodity prices.
This is as a result of weather related supply shortages. I hadn’t considered the effect of “ El Nino” , however, I consider it to be another event akin to a favourable macro-economic event such as the falling AUD.

TO read the full article, follow the link below.
I have also quoted one of the more relevant sentences in the article for your consideration:

Quote;

“ Several agricultural prices have rallied off their lows on fears of weather-related supply shortages. Sugar prices have risen 31 per cent over the past three weeks; dairy is up 36 per cent, palm oil has gained 13.1 per cent and wheat is up 6.1 per cent over the same *period.”


http://www.theaustralian.com.au/bus...-nino-takes-hold/story-fnay3ubk-1227567903112


Disc – Opinion only. Invested in MGC, CGC, AAC and WBA. DYOR.

 

[Craton]

The prospect of El Nino and higher prices may be well and good but without water, ya can't grow nothing and hence the TAN t/over.

Uncertainty to what would happen with TAN assets, what WBA had planned for its own assets and the fact it would take some years for WBA to transistion made me jump the TAN ship and forfeit becoming a WBA s/holder.

I'm very happy to be an ex-TAN holder selling into market strength some months ago for a nice tidy gain, it was just simply too much enticement.

 

[craft]

The prospect of El Nino and higher prices may be well and good but without water, ya can't grow nothing and hence the TAN t/over.

Uncertainty to what would happen with TAN assets, what WBA had planned for its own assets and the fact it would take some years for WBA to transistion made me jump the TAN ship and forfeit becoming a WBA s/holder.

I'm very happy to be an ex-TAN holder selling into market strength some months ago for a nice tidy gain, it was just simply too much enticement.

Nice move in the short term. But I still see WBA as an excellent long term prospect. The combination of Water, permanent plantings and annual cropping land gives them unique flexibility.

I really like the latest presentation. Serious people with serious skin in the game putting the facts simply and just as I see them as well.

The time frame and risks on this one probably doesn't suit most but I have been and will continue to re-accumulate.

http://www.asx.com.au/asxpdf/20151021/pdf/4327sbvmy4xjnx.pdf

 

[Ves]

craft,

Forgot to post at the time, but I did read that presentation and the language in it contained a lot of the key themes I looked for as a long-term investor.

Agree with all your previous comments about the walnut business and the competitive advantage.

It took me a long time to get my head around it - but ironically when I finally did the whole landscape (pardon the pun) changed.

I understand the additional land gives them water and flexibility (both in terms of balance sheet funding opportunities and also matching their product mix to the economic demand of the time).

That's all fine. The opportunities are there. The key ingredient, which is in that presentation (and the earlier acquisition releases), is in my opinion, execution risk, especially the human factor!

My research tells me that in agriculture, the only things you can change once you have the land position, is the way the land is managed, and of course who manages it.

It's not a business that anyone can run. It seems you're confident in the key people involved and you will definitely need to be to hold through the tough times that will no doubt come.

But even then the key people can't guarantee success. Not all land is made for market beating returns on capital (in fact in aggregate, the statistics I found show that most agricultural land is a poor investment).

In the end it's a commodity business IMO, there's a bit of luck (market demand / weather) and the rest through great management is having lower costs than your competition (water rights helps reduce costs).

I noticed that the top 20% decile of farming businesses (in the statics you can find with a google search) seem to be far, far more profitable than the rest. No coincidence if you look at most industries.

I could have missed something though. Any other source of competitive advantage that you can see for non-Walnut land?

 

[craft]

craft,

Forgot to post at the time, but I did read that presentation and the language in it contained a lot of the key themes I looked for as a long-term investor.

Agree with all your previous comments about the walnut business and the competitive advantage.

It took me a long time to get my head around it - but ironically when I finally did the whole landscape (pardon the pun) changed.

I understand the additional land gives them water and flexibility (both in terms of balance sheet funding opportunities and also matching their product mix to the economic demand of the time).

That's all fine. The opportunities are there. The key ingredient, which is in that presentation (and the earlier acquisition releases), is in my opinion, execution risk, especially the human factor!

My research tells me that in agriculture, the only things you can change once you have the land position, is the way the land is managed, and of course who manages it.

It's not a business that anyone can run. It seems you're confident in the key people involved and you will definitely need to be to hold through the tough times that will no doubt come.

But even then the key people can't guarantee success. Not all land is made for market beating returns on capital (in fact in aggregate, the statistics I found show that most agricultural land is a poor investment).

In the end it's a commodity business IMO, there's a bit of luck (market demand / weather) and the rest through great management is having lower costs than your competition (water rights helps reduce costs).

I noticed that the top 20% decile of farming businesses (in the statics you can find with a google search) seem to be far, far more profitable than the rest. No coincidence if you look at most industries.

I could have missed something though. Any other source of competitive advantage that you can see for non-Walnut land?

Operationally Richard Haire and David Robinson have a lot of experience and respect. Strategically David Cushing and Chris Corrigan both bring something to the table. All except Haire have considerable skin in the game.

The Bengerang property in my view introduces the most valuation risk because it was purchased from the director and associates – but they did take shares – so long as they keep those shares I’m more relaxed. It is mostly ex Prime Ag assets and as far as my research goes I think the price paid is pretty fair. The Kooba station property purchase looks timely and has a direct strategic fit with the TAN water assets.

As far as Competitive advantage – I’m not counting on anything more than the Walnuts and the 100% coverage of water rights for these permanent plantings. (in contrast SHV have about 25%). The flexability of what they can do with excess water in good years is also some advantage. (Tan didn’t have this flexibility so the water rights are more valuable in WBA’s hands) But basically a lot of the land probably won’t earn any more than cost of capital over a cycle of bad & good years. But even that to ensure you never have to be exposed to astronomical spot prices in drought years (if the water is for sale at all) to keep your permanent plantings (which do have a competitive advantage) alive is an acceptable return to me.

Maybe I’ll get lucky and Haire & Robinson and the properties owned combine to be in the top 20%. But I don’t think I have paid for this possibility.

People may think I’m crazy given the current share prices – but it wouldn’t surprise me if following a succession of low water allocation years WBA buys SHV for a song. (Although maybe not because Haire is ex Olam so he will clearly know that SHV doesn’t have the competitive advantage in Almonds)

WBA is back to early days in a fashion - This company will need to spend more capital maximizing their potential. Whilst personally I like this and also like to see the directors with major skin in the game talking in big strategic sweeps rather than minute detail – I seem to be pretty alone in contrast to others I have seen comment on WBA. This is not a shoot your lights out tomorrow investment. Walnut trees have a productive life of 25 years – that’s more like the time frame I am looking towards. Its early days – I could be wrong. But I like companies with this sort of potential; I also want the international exposure to soft commodities and any capitalization of land value that an improvement in AUD pricing of those commodities may bring about.

That’s basically my thoughts – did I say I could be wrong.......If not wrong certainly early as the value is not clearly evident from the numbers yet so probably no need to accumulate quickly.

 

[Ves]

Thanks for your thoughts as always, craft.

Current price is pretty close to NTA (if you believe the valuations on the properties are fair value).

I would have thought if they can achieve market rates of return on the non-Walnut assets, any excess return at all over long periods of time on the walnut assets is a big bonus.

All big-ifs, but there is an investment case if the management are competent enough.

As you've said, the big turn-off for most people is that it'll take many years to play out.

It's funny, as an investment proposition it feels like it is similar to when it was closer to 50 cents when we first discussed it.