WES - Wesfarmers Limited

Golly, next support, way down there!

The only thing that's going to turn this around is significant change in business model and/or sentiment and/or T/O.

Recently reading the Smart Investor comic August edition and if my memory serves me well, it had a sulky reveiw on WES, seems the comic was correct ....here you go page 20 written by Alan Jury !
I have a habit of picking up shares like this one ,once it has been oversold -take a look at GDY,EOS ,RIN you see how low I stoop.

You going to wait till it hits $30, 3 Views, or are you bargain hunting now.

kennas said:

You going to wait till it hits $30, 3 Views, or are you bargain hunting now.

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At the moment I've got a cash flow problem,but once resolve early next week ,I will access.
Patience Kennas ......you never know when the worm turns in todays market ,but WES have some big issues coming their way,I'd rather wait!Dark clouds mate ,getting darker! Need time to think even CSL tempts me.

wes....


couple of months on... still think its in a down trend...

is $34 a share too expensive. the dividend is very handy....

would it be worth adding. its under performed 2006 and 2005 hasnt it...

To my estimation (purely technical) it's consolidating in a downward slopping flag pattern and has found support at the 38.2% fibb. retracement of a previous major range and is within the orb for a primary cycle low.

It's also paying a 5.9% fully-franked dividend against a 3.8% All Ords average.

This all said it's not showing any signs (yet) of resuming an uptrend.

Wesfarmers tipped as likely target for LBO
12th January 2007, 7:45 WST

Leveraged buyout firms are now said to be sizing up Wesfarmers for a $14 billion-plus takeover bid with a view to breaking up the WA group.
With Wesfarmers shares trading at near 12-month highs, traders said yesterday that trading in credit default swaps suggested the company was being stalked.

Wesfarmers five-year credit default swaps (CDS), financial instruments that are used to speculate on a company’s ability to repay debt, have widened from $US24,000 ($30,670) for each $US10 million of debt to $US45,000 since the beginning of the year. An increase indicates a deterioration in the perception of credit quality and a fall suggests an improvement.

“There is nothing else that would justify that kind of widening at the moment,” Westpac director of capital markets Phil Miall said. “Someone is expecting its credit quality to deteriorate.”

Wesfarmers is seen as particularly attractive to LBO groups because of its diverse spread of strong, separate businesses with good cash flows, including the Bunnings hardware chain and Kleenheat Gas, which could be sold as stand-alone companies.

“Wesfarmers has six separate businesses which can be readily divested,” said Craig Saalmann, a credit strategist at ABN AMRO. “There is no shortage of liquidity chasing good assets.”

Also, unlike other targets, Wesfarmers shares are trading well off their record highs, having risen just 1.5 per cent last year, against the 19 per cent gain by the S&P-ASX 200 index.

At yesterday’s close of $37.56, up 36 ¢, Wesfarmers is valued at $14.2 billion. However, on a sum-of-parts basis, it may be worth considerably more.

The company declined to comment yesterday. However, one senior Perth business figure, who requested anonymity, said he did not doubt Wesfarmers was “vulnerable to a break-up”.

“I think there is a real chance the company might well be in play down the track,” he said.

Wesfarmers chief executive Richard Goyder is already on record as saying that the flood of LBO cash into Australia over the past 12 months has hampered growth prospects for listed companies by increasing asking prices for acquisitions

“The whole private equity thing is interesting, because clearly it’s making some assets more expensive and I can’t see us getting into a bidding war with private equity because we wouldn’t be able to pay the same price,” he said last month.

SEAN SMITH and ROBERT FENNER with REUTERS and BLOOMBERG

Ever since the offer for Coles I've been saying that old WES would be next. I agree with the author that the business is worth far more than the some of the parts. Further more there gearing is easily low enough to support the debt the LBO would bring in.

The outlook for Wesfarmers' Coal division is putting too much downward pressure on the overall shareprice. Equally, I think the market has overly discounted them for it.

Interestingly enough, Wesfarmers have very recently split off their Coal operations from the Wesfarmers Energy division in to a division of its own. WES requires that each of its division's compete internally for capital. Maybe they're positioning themselves to divest the coal assets?

Incidentally their insurance division is going gangbusters at the moment - the ROC for some of their insurance businesses is off the scale. That's why they took OAMPs and why it wouldn't suprise me that in the next 12-18 months we see them take a few more insurance companies out.

But the question is - in the event of a hostile takeover (a friendly takeover just won't happen), will they be able to defend themselves? It's tough. I think management at WES is conservative enough to make them an easy target. However, with the right advisers, there'd be plenty of easy arguements to make that no matter what the offer is, it undervalues WES.

I've been watching this too, but not closely enough the past month to notice the breakout. I've always been vary curious of their business model. It seems to be more a shell company for other assets than one homogenous organisation. Insurance and coal?? More like an LIC? With the amount of liquidity in the market this has to be on the radar of MBL and co.

No, just an old fashioned conglomerate.

It was originally a business that served the needs of Western Australian farmers. They owned a company called Landmark (which they have since sold to Elders I think). When a farmer needed seed, pesticides, or whatever, all he had to do was speak to his local Landmark office. Wesfarmers expanded into producing the fertilizers and chemicals themselves and added specialist insurance products aimed at Farmers.

Since then they've added coal, got rid of Landmark and some of their other businesses and also grown insurance thru the purchase of Lumley, some underwriters from farmer's co-ops around Australia and even ventured into NZ.

Their model hasn't been anything like a LIC, its been about growing their existing businesses where they have experience into new markets - gradually stepping out. It's been very conservative, but it has worked.

Thanks DrJ, Most of the subdivisions I can understand as serving the needs of the WA farmers. The business unit that doesn't make a lot of sence to me is the Coal division. What made them go into this area? Plus, the Curragh mine is in QLD - hardly WA focussed there. Just natural expansion? Do you think they've eventually expanded too much, and therefore would be a target, or was this just their approach to add value to shareholders?

I don't know too much about the advent of Wesfarmers Energy unfortunately. As for it being in Qld - I think this isn't especially relevent. WA is where WES started, but it now sees itself as proudly Australian. It has established close ties with farmers and tradesmens co-ops across the country. It has especially close ties to Qld, especially after Cyclone Larry in March last year. It destroyed so much in the farmland up that way and Wesfarmers took the opportunity to build its reputation with its clientele in the area to help get a lot of farmers back on their feet.

I don't think Wesfarmers have expanded "too much". They are an incredibly well run and managed company. In a world of cheap debt, I just feel they are a little too conservative which has cost them in terms of there share price in recent years (lets not forget just how much they've out performed the market in the last 10 though) and will ultimately make them a target for a LBO.

Hello,

Since Chaney has left their SP has struggled yet NAB's has sky rocketed.

I think their being looked at as an expensive Retail stock primarily from the Bunnings side of things.

Bunnings is now selling household electrical items etc

Will be interesting to see next 5yrs.

thankyou
robots

Thank you all for your thoughts on WES

I agree with technical and fundamental opinions that something is afoot with WES.

?$42 + within the next few weeks.

Garpal

Garpal Gumnut said:

Thank you all for your thoughts on WES

I agree with technical and fundamental opinions that something is afoot with WES.

?$42 + within the next few weeks.

Garpal

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Garpal, you need to provide some analysis on why this stock it going to your target here. Not just a blind pluck. Can you please inform us of your methodology in coming to this price targe? Cheers, kennas.

Thank you for giving me the chance to expand.

Fundamentally I agree with Kauri and Doctorj. WES is a conglomerate, asset and cash rich and not just a West Australian Co-op run by farmers anymore. It is the sort of operation that Buffet would have looked at 30 yrs ago in the US. Its well run, divisions are each accountable and the company is not shy of shifting direction. It makes money and pays good divies. Every time I go to Bunnings I am astounded at the service and value, and the number of customers. I don't know anything about insurance preferring to buy stock in insurance companies, but they tell me WES are on to a good thing in the financial press.

Technically with which I am more comfortable on the monthly charts it has been making higher highs and lows since 1990, on the weekly a downtrend since Nov 2005 has been broken and price and 5,15 and 30 EMA have recently crossed to an uptrend. Just before Christmas the daily charts did similar. (I don't watch daily charts much, I'm a long term investor.) The high was $42.45 I think on about St Patricks Day in 2005. I expect the monthly chart to continue as I believe in the power of the trend.

I may be wrong. Sorry I can't post charts.

garpal

Wow guys, this move from Wesfarmers completely skipped past me. To be honest, I watched it continually decline throughout 06 and really just took it off my watch list. I have always like the business model - it has always been a well managed business and I agree with Kennas in saying that the mix is a bit odd - certainly not a traditional divisional mix, but it has certainly worked in their favour in the past.

Really like this latest move technically - it appears to have broken that downtrend that has been in place since about March 2005. Additionally, those lows back August - September 06 attracted a lot of volume, suggesting buyers accumulating a cheap stock oversold. Fridays close is an excellent sign - close right at the top with medium high volume. If there is a LBO here on the cards, I would expect that in order to get the directors to sign off, they will need a significant price premium than is presently reflected in its share price. I will be adding this one to my watch list ASAP - I think this one has the potential to move and quickly.

Cheers
Reece

Hi Gumnut (odd name for a trader?!?),

Here is the chart. I've marked it up to show each consolidation/down trend and the fibb. level of the retracements. Moving average is a "simple" 12-month.

Nice chart Asxgorilla. What software do you use? Gumnuts wait and wait for fire or rain then grow. Your name equally is peculiar for a trader.
Garpal Gumnut

theasxgorilla said:

Hi Gumnut (odd name for a trader?!?),

Here is the chart. I've marked it up to show each consolidation/down trend and the fibb. level of the retracements. Moving average is a "simple" 12-month.

Click to expand...

Great chart Gorilla, thanks.

My 5 year chart is a little more bullish that yours. Just turned the corner on a long term wave 5 perhaps. Plus, MACD just about to break though signal line and diverging....


Time for a CDF perhaps...

Must say, I'm still bearish about the general market right at this point. Wouldn't want to commit overly to something that will be effected by a general market correction - like this - perhaps...