WES - Wesfarmers Limited

[Value Hunter]

nice flip to irrelevant VH

Its not irrelevant. My point is Wesfarmers has had a confused capital management strategy for decades which is very shortsighted. They have no long-term vision of how to manage their balance sheet. They issue shares to make an acquisition, then a few years later they do a capital return, then they issue shares again and the cycle keeps repeating. They have done this multiple times over the years. Why not just adopt a capital management strategy that makes sense for the needs of your business? If they had managed their balance sheet in a similar fashion to Berkshire Hathaway there would be far fewer shares outstanding today and the share price would be a lot higher. The company is run by muppets, most intelligent people on this forum could run Wesfarmers better than its currently being run.

 

[divs4ever]

Again highlights the ineptness of the board. Issuing shares in 2001 to acquire Howard Smith then 2 years later doing a capital return. The board doesn't know if they are coming or going. A confused constant revolving door of capital. If as a company over time you know you are going to be a net acquirer of business (their acquisitions have exceeded their sales of businesses over time) then you should not do capital returns and should keep the dividend payout ratio low. That way you don't need to keep diluting shareholders with constant share issuances.

There are some exceptions to this rule such as when Henry Singleton was the CEO of Teledyne because he would issue shares when the stock was massively overvalued to buy undervalued companies and then he would buy back his own stock when it became undervalued, thus arbitraging the ups and downs of his company's share price. He was strategic about it. Most boards are too dumb to pull off that strategy and should stick to what I said above. And note Hnery Singleton was the largest shareholder in Teledyne again going back to my point about owner operators making better decisions.

while i would agree with you , normally , i remember my relative that held Rinker ( a spin-off of CSR ) at the time

now Rinker looked like a careful well-run business that accumulated a large pile of cash , that it could not invest sensibly , so didn't

along came a Mexican rival ( cash-poor but a very large credit facility ) and essentially bought out Rinker with the cash it was going to inherit from the take-over and claimed the Rinker board were inept because they couldn't deploy the cash stock-pile , effectively ( one might wonder if the take-over looked so attractive if Rinker had of done some capital returns in the preceding years and frittered away that cash buffer )

 

[Value Hunter]

while i would agree with you , normally , i remember my relative that held Rinker ( a spin-off of CSR ) at the time

now Rinker looked like a careful well-run business that accumulated a large pile of cash , that it could not invest sensibly , so didn't

along came a Mexican rival ( cash-poor but a very large credit facility ) and essentially bought out Rinker with the cash it was going to inherit from the take-over and claimed the Rinker board were inept because they couldn't deploy the cash stock-pile , effectively ( one might wonder if the take-over looked so attractive if Rinker had of done some capital returns in the preceding years and frittered away that cash buffer )

Rinker shareholders won from that deal. They got bought out at a 10.4 times EV/EBITDA multiple when earnings were close to the peak (earnings tanked the next year due to the global financial crises).

Rinker accepts $17.5bn takeover

Mexican cement maker Cemex has clinched the support of Rinker Group's board after raising its once-hostile takeover offer by more than 20 per cent to $US14.25 billion ($17.46 billion), making it the second-largest takeover bid for an Australian company.

www.afr.com

I do not see how that was a bad outcome.

 

[divs4ever]

only because the US has gone totally clown-world with their taxation addiction ,

who says Rinker couldn't have picked up some great assets during the GFC ( after all it had cash , and wasn't reliant on credit )

Boral couldn't do similar in the US

PS why do you hoard cash ... so the bad years aren't devastating

 

[Value Hunter]

who says Rinker couldn't have picked up some great assets during the GFC ( after all it had cash , and wasn't reliant on credit )

I am not sure where this idea comes from that Rinker had cash. Yes it had cash reserves but overall it was in a net debt position. According to the article I linked (again here is the link below) Rinker was in a net debt position.

Rinker accepts $17.5bn takeover

Mexican cement maker Cemex has clinched the support of Rinker Group's board after raising its once-hostile takeover offer by more than 20 per cent to $US14.25 billion ($17.46 billion), making it the second-largest takeover bid for an Australian company.

www.afr.com

Perhaps the commentators were referring to the fact that it was considered undergeared and had a "lazy balance sheet" by the standards of the time (most companies were over-leveraged going into the GFC hence all the capital raisings that happened during the crises). Rinker had a low level of net debt, which is pruident. It didn't however have a pile of net cash on its balance sheet. Cemex 100% debt funded the bid to bring up the debt to equity ratio to what was considered a more conventional level at the time (right before companies had to raise capital during the GFC due to being over leveraged).

Here is another article:

Rinker to fight $16.8bn takeover

Rinker Group will this week start courting rival offers and consider handing billions of dollars in cash back to shareholders as it prepares to fight Australia's biggest all-cash takeover bid, an unsolicited $16.8 billion offer from Mexican building materials firm Cemex.

www.afr.com

 

[Value Hunter]

Henry Singleton: A Capital Allocation Masterclass in Three Acts

"I do not define my job in any rigid terms, but in terms of having the freedom to do what seems to me to be in the best interests of the company at any time."

www.kingswell.io

This is a case study of how companies should manage their capital.

Years ago in Australia we had a mini version of this in a company known as Lemarne Corporation (previous ASX Code: LMC) before it got taken over. The total shareholder return over the life of the company being listed on the ASX was something 15% annualised from memory over a long period of time. They had low debt and bought back stock whenever the shares where undervalued and they issued stock to make acquisitons when their stock was overvalued.

 

[Dona Ferentes]

got to keep nimble to stay ahead. Will Bunnings develop a similar service?

Nearly three-and-a-half years ago [the] family’s century-old Bowens timber and hardware business, which had been established by his great grandfather, launched its e-commerce function for trade and retail buyers.....

Bowens’ Uber Direct service – the company has a commercial agreement with the rideshare and delivery giant’s Australian arm – for timber and hardware products. It guarantees 90-minute deliveries via Uber drivers of up to eight boxes weighing up to 20kg to building sites within a 15km radius from a store.

So far, average delivery times for the service, which charges a $10 flat fee, are less than 60 minutes....

https://www.theaustralian.com.au/business/leadership/how-bowens-uber-tieup-has-revolutionised-hardware-delivery-to-the-front-door/news-story/aa9303a838b6f8d298be07d58b130784

 

[Dona Ferentes]

according to the media,

Wesfarmers is considering bid for Ramsay Health Care

 

[Value Hunter]

according to the media,

Wesfarmers is considering bid for Ramsay Health Care

If it occurs it will be another dumb overpriced acquisition by wesfarmers (just as Coles was). To buy a bluechip company like Ramsay you would have to pay a considerable takeover premium. I doubt any takeover would be accepted for less than $65 per share. Ramsay is now a arguably mature low growth company and the price to earnings ratio and price to book ratio would both be astronomical at that price. If the takeover occurs it will only generate long term returns for Wesfarmers shareholders in the single digits (thereby diluting the existing return on equity). Not to mention given the size of Ramsay, Wesfarmers may need a capital raising (share placement) to fund the deal. The dilution would just be adding salt to the wound.

Wesfarmers continues to be run by muppets. It has a decent collection of assets so despite being run by muppets its done well inspite of itself.

 

[farmerge]

WES Wesfarmers my No 2 pick in the yearly comp. SP is down somewhat this month, but nothing to worry about. Their acquisitions are the money-making machines, that others can only dream about.

 

[Dona Ferentes]

Investor Day presentation out ... 95 pp.

Not going into private hospitals.
Lithium a work in progress.
Officeworks transforming - mobile plans next,
Bunnings , yeah

 

[Dona Ferentes]

Investor Day presentation out ... 95 pp.

and nothing in the content to scare the punters , it would seem. Building on the Feb results, it has been solid ever since.

WES hit a 52 week high today

 

[Garpal Gumnut]

One of my picks in the Yearly competition @debtfree

Another all time high today, over $70.

The chart looks good and divvies this year should total over $2.00 ff. I would imagine there will be some consolidation in the high $60's before the next leg up.

gg

 

[divs4ever]

hmmm , yes at $70 plus a share , i probably should considering retiring from their DRP

it isn't so suitable for me now i am nearly 70 ( it bulks up too slow )

 

[Garpal Gumnut]

WES lost 3.46% today and is back close to $68. I haven't seen any announcements and it is probably due to inflation spooking shoppers.

JBH lost close to 5% although WOW and COL less than 1/2 a percent. Discretionary took the hit.

I might lower my $100 target for WES this year. Just shows eh, one minute **** o' the walk and next minute a roast chook. LOL, , I love the markets.

gg

 

[Dona Ferentes]

evidently we'reall going to bank the coming tax cuts.

• Shares in Baby Bunting, the country’s largest children’s products retailer, tumbled more than 22 per cent on Thursday as it revealed profit for the 12 months to June 30 was likely to be as low as $2 million, compared to $14.5 million a year earlier
• Electronics outlet JB Hi-Fi,
• automotive chain Super Retail
• online furniture store Temple and Webster also dropped on disappointing results, with shares in the latter falling more than 17 per cent to $10.46

BUNNINGS - you little beauty

 

[Garpal Gumnut]

Is anyone else falling out of love with WES ?

gg

 

[divs4ever]

Is anyone else falling out of love with WES ?

gg

not me , but am not rushing to buy extra at current prices either

i participate in the DRP ( so far )

would be more interested in buying when around $30

 

[Dona Ferentes]

Is anyone else falling out of love with WES ?

gg

well, I think your 'onward and upward' target, aspirational perhaps, of $100 was optimistic, but it's a LT play for me.

And not for banal reasons, but rather by having a coupl'a thou' shares there in the portfolio, I feel I can just have WES as a sectoral allocation , and I can get on with trying to chase performance in more volatile, exciting places, which demand my attention

 

[farmerge]

Is anyone else falling out of love with WES ?

gg

@Garpal Gumnut Certainly not me.