----- Original Message -----
Sent: Sunday, February 11, 2001 9:02
AM
Subject: [sharechat] The Warehouse sales
good news - but not the full story
The Warehouse quarterly sales
release was pretty good news for shareholders. Reported revenue growth of
12.6% for the quarter and 14.1% year to date is pretty
impressive.
Compared to the overall retail
sales growth, Farmers Deka reporting small sales growth ( down 3,8% first
quarter and up 5.6% second quarter) and Kmart down more than 20% one must say
that WHS is still significantly increasing that all inportant share of the
retail market.
However the releases do not
tell the real story, that from a shareholder's (ie an owner's)
perspective.
Overall WHS sales (the sales
that we own as shareholders) year to date January 2001 have grown from $600M
last year to $907M this year - an increase of more than 50%. I am disappointed and surprised that the company
did not actually include this in their
announcements.
Part of the increase is from
Australia but isn't acquisition one of the WHS growth platforms.
A rough extrapolation puts WHS
annual sales at around the $1.65-$1.70B mark - $1.2B coming from
NZ.
Shares have been issued to
fund the acquisition so lets have a look at the revenue / share ratio. Last
years sales were $3.73 a share and this year they will be about $5.66 a share.
What margins WHS achieves this year will determine the level of earnings that
will achieved.
How does this relate to the
WHS share price?
During 1999 the WHS price (pre
profit announcements) was comfortably positioned about the 360 mark - trading
at PE of about 19. Pre 2000 announcements the WHS price trade at a 530 level -
a PE of 18. Post 2000 results and Australia announcement the WHS price went to
680. Based on the premise that the market was comfortable with a PE around 19
this suggested that the market valued the NZ ongoing business at around 530
and the Australia acquisition at around 50 cnets a share Since then the WHS
price has been downgraded to 560 (reflecting slightly less revenue growth and
stressed margins?)
This all makes sense. The NZ
business is not coming up with any surprises. It seems, by consensus,
that traditional Warehouse margins won't be coming out of Australia for a
while. The present 50 cents a share built in for Australia equates to roughly
$10-15M earnings (less than 3% of reenues compared to The Warehouse 6-7% of
revenues).
Based on this the current WHS
price is most likely a fair one. Maintaining core earnings growth should see
the price go up over the next year by another 10% plus form here. If the
Australia operations really fire quicker than anticipated than there is still
considerable upside on the current WHS price.
All good stuff and will keep me interested
for a while yet. Warner - I hope that you got some at the 525 they went down
to last week.
Cheers
Peter