Forum Archive Index - September 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

I have eagerly perused the just released annual report and I must say, 
there are a couple of positive surprises in there. 

Profit was down for FY2003 as previously announced.  However, that 
reduced profit includes a $4.2m charge for strategic and restructuring 
initiatives.   If we consider a 'normalised profit' and add $3m after tax 
back into the result because of it, then profit comes out at $17.9m - 
virtually fat with the previous record year.   It has been well flagged 
that farming times were tougher over the last year, so I see maintaining 
a flat underlying profit in that climate as a great result.

Last year is now ancient history and what really drives the share price 
from here on in is the outlook for the following years.   The Fronterra 
announcement of the boosted milk payout of $3.90 is one indicator that 
the coming year will be better than this one (payout $3.65).    Of more 
concern is the indicator estimate for FY2005 of $3.20,    Farmers know 
that they have to keep up the spending on their land in 'lean' years so 
my prediction is that of all the retailers WRI (and other rural service 
companies) will suffer the least in any FY2005 downturn.

Normalised WRI profit is 16.4cps.   If the FY2005 is reduced in 
proportion to the milk fat payout ( $3.20/$3.90 ) then NPAT drops to 
13.5cps.   In other words the dividend of 11.5cps is still well covered.

Completely left out of all this reckoning is the agreement to market 
financial products in partnership with Rabobank which expires in 
November 2003.   WRI have dipped their toe back into farmer 
financing in 2003.   But reading between the lines in the annual report I 
think we can look forward to an all out assault on the farming financial 
loan market from WRI, while Rabobank has to look elsewhere for a 
sales outlet to maintain their profile in New Zealand.    This is 
wonderful news for WRI shareholders as back in the 'old days'  their 
finance arm was a real cash cow.  The company has no term debt 
which is a very good base to start building up a financial arm again 
from.

ROE in 2003 was $18.475m/$125.118m= 14.7%.  Add back in the after 
tax effect of $3.0m in restructuring initiatives and ROE jumps to 17.1%.

Long term policy is to pay out 60-80% of profit as dividend.    WRI 
currently pays out more than that, so I don't see the prospect of the 
dividend being raised in the foreseeable future.   But now that the 
dividend looks sustainable through 2005, I wouldn't be surprised to see 
the yield drop to around 8%, which means a share price of around $2.

Meanwhile the broad brush trend followers will only see the reducing 
returns on commodity prices, and predict doom and gloom for the WRI 
share price.   As the share price rises they will shake their heads in 
disbelief, claim that the market is behaving irrationally and miss out - 
again.  Oh dear!   When will they ever learn to recognize a bargain.

SNOOPY

hold WRI

--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Stay on the upside of the downside, 
Anticipate the anticipation!"




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