Hi GG, I was a tad surprised as well, but Morgan's (one of the...

Hi GG, I was a tad surprised as well, but Morgan's (one of the lead IPO brokers) is forecasting a Wking Cap Adjustment of -63m in FY16, reflecting the build up of inventory levels during 2H16. Given Morgans are obviously close to WLD, I am taking this forecasts as pretty much accurate for FY16.

While I agree that this inventory issue is somewhat transitory, the reason I am circumspect regarding a rapid bounce back in FY17 earnings and cash flows are 3 fold:
1. there has been no apparent earnings benefit from the favourable movements in fuel costs and currency during FY16, which makes me concerned regarding the real livestock price risk to which WLD is exposed. In light of this, there is no way that I can justify WLD's assertion on page 17 of the 1H16 Presentation Pack titled "Business Model Recap" that they "Concurrently Agree Price (in US$) - margin fixed".
2. as I stated in the last post, the rapid (and largely forced) adjustment in strategy to source "cheaper" cattle from South America, I think is somewhat dubious when accounting for fuel and feed costs & beef quality. Also I seriously doubt whether WLD have the required pre-export facilities and logistics in place within Sth America to compensate for the suggested materially lower volumes to be exported from Australia in FY17 (& going forward?).
3. as far as I am aware, Brazil are not even close to forming any live export trade protocols with Indonesia & Vietnam, who are WLD's 2 largest customers representing 48% & 41% respectively of WLD's Live Export Revenues.