WES 2.88% $71.60 wesfarmers limited

Oh, dear.(Sigh...)Acaicia, um...I always find in these...

  1. 450 Posts.
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    Oh, dear.

    (Sigh...)

    Acaicia, um...I always find in these situations that it is better to deal in the facts, rather than emotionally-charged innuendo, inference and insinuation.

    And there is nothing as factual as good old-fashioned cash flow. (You can't make that stuff up).

    So let's together in a nice collegiate manner contemplate some pertinent facts:

    Fact: WES has, since the acquisition of Coles, generated an average of $2.5bn in Free Cash Flow per annum.

    Fact: In FY12 WES generated $2.8bn in Free Cash Flow

    Fact: WES's book value is $26bn

    Fact: If WES's market cap was equal to its book value, then the laws of financial arithmetic dictate the FCF yield on WES's FY12 performance is 11% (2.8bn divided by $26bn).

    Fact: An 11% FCF yield is the same as a 9.1x FCF multiple.


    So you are insisting that one buy this company - with all its wonderful businesses - only when the payback period is less than 10 years?


    Er...Good luck with that one.

    I hope you are a highly-disciplined and patient investor because I suspect you might have a little bit of a wait on your hands.

    It's just that in the fifteen years of following the company, I've never seen it trade close to a valuation that presented investors with a sub ten-year payback.

    Be sure to post assertively on HotCopper on the day it gets there.


    Cam


    Addendum Fact:

    "Cam says that WES paid too much for the Coles acquistion but he thinks this all fine"

    means something distinctly different to:

    "Let’s start off by not mincing words:
    WES overpaid for Coles.
    Unequivocally.

    The transaction destroyed value for the shareholders at the time, not only by overpaying for the business, but in the equity dilution that followed as part of the financing of the deal at a time when equity capital was very expensive.

    To wit: in the middle of the GFC.
    Really dumb."


 
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