retail offer take-up, page-3

Looks like 53% - from Pattersons
Wesfarmers Limited (WES and WESN) $17.24

Recommendation: Change from SELL to HOLD

Analyst: Russell Wright Tel: +612-8238-6219


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Investment Highlights

· Retail shareholders apparently took up 53% of their entitlement offer at A$13.50/share and this also now appears unlikely to be scaled back by WES.

· WES has already raised A$2.0 billion through the Institutional Entitlement offer – A$1.5 billion at A$13.50/share and A$0.5 billion at A$15.00/share – and A$0.9 billion via a placement at A$14.25/share to Capital Research and Colonial First State.

· Now through the retail entitlement offer it has raised a further A$1.5 billion. This is A$1 billion more than WES anticipated at the outset of the offer.

· This total of A$4.4 billion makes it the largest secondary offering ever in Australia.

· This takes WES net debt to just A$3.85 billion and its gearing (net debt to equity) to less than 15%.

· The Retail Entitlement Offer settles on 2 March 2009 and the issue of new shares under the Retail Entitlement Offer occurs on 3 March 2009. WES total shares on issue should be 1,125m post the issue.

· Given the high take up of the Entitlement by retail investors our analysis suggests that index funds should be net sellers of much less than 9m WES shares thereafter – an amount readily digested.

· Our revised PE-based valuation of A$18.41/share (our DCF valuation is A$25.67/share).

· Hence we are revising our recommendation from SELL to HOLD.

Russell Wright
Retail Analyst