Forum Archive Index - July 2000

["Peter Maiden" <pmaiden@today.com.au>]

Based on NZ earnings alone my own DCF (at a modest risk rate) is 520-550 per 
share. Add to that acquired Aust earnings at a higher risk rate over all DCF is 
in excess of 900.
 
The driver of any attempt to put a value on WHS has to be how long can the 
incredible revenue growth in NZ be sustained. For me the answer to that 
question is for at least another 4-5 years.

Why? The answer has to be in the socio-economic fabric of NZ. Who would have 
thought that the phenomena of red sheds would have transcended across so many 
boundaries. Not many years ago there was a large proportion (the more better 
off) of the population too embarrassed to be seen in them - now you see well 
heeled investment managers in dark suits visiting stores and wondering why they 
did not invest in them earlier.

This change has happened because of the way the distribution of wealth in NZ 
has moved over the last 10-15 years - the poor are getting poorer, the middle 
class are getting poor and the rich getting richer. And then there is the 
dis-enfranchised old.

Current government policy is accelerating this trend.

A trend that only increases it customer base - and a greater share of existing 
customer's share of wallet.

The way that NZ is heading The Warehouse customer base can only increase 
(Idoubt that many of the beneficiaries of the 'closing of the gap policy' will 
beable to trade up to Hallensteins, Bond & Bond etc).

I have also observed the attractiveness of The Warehouse even to the young 
woman of the world. When Dad pays Doc Martins are the only choice - when one 
becomes a student and need to support oneself $29 black dress shoes from The 
Warehouse are more than acceptable to wear to your part time job with a 
merchant bank.

There is no reason that this business that has grown from nothing to $1B in 
revenues in 10 years and has ( I think this was the number I read somewhere) a 
third of the population visiting it stores each week should not continue to 
grow as it has - the countries social fabric will ensure that it will. A good 
trend to look at is what share The Warehouse has of total (excluding motor 
vehicles)
retail sales as provided by Statistics NZ.

The Warehouse is also competing on-line and no doubt could increase this part 
of their business quickly if any competitive
pressures were put upon them

There remains many other opprtunities to expand their business beyond what they 
have now.

If the Australia acquisitions are managed the same way and overall margins 
improve then imagine what any substantial increase in revenues will do to the 
bottom line.

The DCF is based very much on a cash driven company but revenue growth 
expectations nothing like that built into amazon.com or the like.

>From a traders point of view WHS will always be a stock that will bring 
>incredible gains. Not just holding but because it is not a glamorous stock 
>(and people only too willing to see it fail) it will always be subject to 
>falls along the way. The falls will always be compounded by this feeling ( ie 
>Tindall has high blood pressure will take 100 of the share price but Warehouse 
>doubles revenue will only add 100 - get the picture). That is the time to make 
>even more as WHS will always rebound to new highs. Pity it didn't reach 600 
>this week. It will soon and then sentiment will take over and there will
be a fall to 550-570. Within a short time back to 600 and then higher to even 
more greater levels.

Thoughts

Peter




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