@vic_wattle, Apologies for the tardy response; I've been away...

@vic_wattle,

Apologies for the tardy response; I've been away from HC for a bit.

Based on the structure of WES's P&L and the low level of Net Debt, 10x EV/EBITDA translates into a P/E of around 18x.

However, because of the under-geared nature of WES's balance sheet (which will still be the case even if it does acquire LYC.... Net Debt-to-EBITDA will go from around 0.4x to a still-generous 0.8x), I think that EV/EBITDA is the more meaningful way to value WES.

And in today's market of ultra-low bond yields a company of WES's pedigree with its current portfolio of high Return-on-Capital businesses, I believe that this stock should trade at 12x EV/EBITDA, at a minimum.

That equates to a P/E multiple somewhere between 20x and 22x.

Based on your ~180c EPS guesstimate for FY2020, it implies a share price somewhere between $36 and $40.

So, I think it is fair to say that the re-rate for which I had hoped is now 80% or 90% complete.

But even if it did reach $40, that would not be reason for me to sell any of my WES shares.


PS. Your question made me go back and test to what extent an investment in WES at the time of my post - i.e., in March 2018 prior to the Coles demerger - was a worthy one. Back in March 2018, WES's share price was $43.40. Today the value of that investment is $50.80 (WES share price = $36 + COL share price = $12.60 + Dividends = $2.20), so a total investment return of 17%. That compares favourably to the 11% return generated by the ASX200 Accumulation Index over that same time frame.