By David McEwen
Friday 20th December 2002 |
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Anyone who bought its shares five years ago has been well rewarded. Since 1998, the share price has risen from $1 to $3.95, driven by earnings per share that rocketed from 8.3c in 1998 to 48.4c in 2002.
Despite the rise in the share price, it remains modestly priced at $3.95c, which is only eight times earnings. The relatively weak support for what is an excellent company is clearly irritating W&K's directors. The latest annual announces a share buy back.
"On occasion over recent times, the company's share price has traded well below what the directors consider to be a realistic market value," the directors say. "As a consequence, directors propose to implement a programme under which the company will, at the directors' direction, buy back up to 10% of the shares of the company on the NZ Stock Exchange ..."
A share buy-back has several positive implications. First, the directors are signaling they consider the shares so under-priced they believe their company can make no better investment than in itself and they are putting their money where their mouth is. Second, by removing shares from the market, the company is shifting the balance between demand and supply in favour of a strengthening share price. If those shares are cancelled, the asset backing, earnings and dividends on the remaining shares will improve.
Operationally, the company produced another solid result for the year to July 31. Net profit was $7.1 million, compared with the previous year's record $7 million.
While appearing flat at first sight, the result was better than reported financials suggest as a number of non-recurring items impacted positively on the previous year's result.
After adjusting for those items, the operating result was actually 18.6% ahead of the previous year.
Numbers may not always tell the whole story but ratios often do and the ratio that counts here is return on shareholders funds. This shows how effectively the company has been in using the funds supplied by its shareholders.
Since 1998, the return on shareholders funds has increased from 2.9% a level at which shareholders would have been better off keeping their money in the bank to 15.6% in 2002.
This shows the success of its strategy of expansion into related areas through acquisition of among other, Fruitfed Supplies (1999), NZ Rural Properties (1996) and Kiwi Fueline, which distributes fuel to the rural sector.
Its acquisitions have also helped in geographic expansion, extending its North Island coverage. By diversifying within the rural sector, W&K has reduced its vulnerability to any one industry.
The dairy industry, for example, is now suffering a decline, but this is not expected to greatly affect earnings.
Reporting on the results for 2002, chairman John Bayly says the company benefited from the strong rural sector and an increase in market share in particularly the livestock and wool divisions.
"Recent acquisitions in the livestock business outside W&K's traditional regions have made a significant contribution to the results," he says.
The remaining core businesses of horticulture, farm merchandise, real estate, rural management and rural finance also recorded solid results.
The company stresses that it is doing well, despite the cyclical fall in dairy prices, because "the pastoral and horticultural outlook remains fundamentally positive."
The Williams & Kettle annual report is a bland document, in the way investors come to expect from most rural companies.
However, as long as the company keeps delivering strong results never promising more than it can deliver no one will care. It's what you do that counts down on the farm, not what you wear.
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