Sunday, August 13, 2006

Wesfarmers Limited Analysis

Wesfarmers Limited is an interesting company that has a good history rising from $5 to over $40.

Wesfarmers Limited is a diversified group with operations in hardware retailing, industrial supplies distribution, coal mining, LPG processing and distribution, fertilisers and chemicals and general insurance.

This appears to be its downfall at the moment as the current trend is to bad mouth stocks which are diversified.

Lets take a quick look at the numbers.

EPS have grown every year for the last 10 years. Thats conistency.
Dividends have also grown every year for the last 10 years.
Revenues have grown every year for the last 10 years.
Net Profit before Abnormals has grown every year for the last 10 years.
ROE has conistenly been above 12% for the last 10 years but when compared to ROC it is only slightly ahead.

The PE is still a bit high at 14.80 with the market average at 15.29. This is not much of a discount.

The dividend yeild is at 5.7% which is not bad and will probably hold the share at this level.

The company has lots of revenue streams which helps when one of them underperforms. Wesfarmers is always seeking new streams as well. This is good if they don't have a large debt which has been creeping up the last few years. In particualr its debt to equity ration is 68%. Way to high to hold unless it has been assessed.

With all of this I believe a 40% discount is required for the risk. Using the average PE for the market would give us a buy price of $21.16 (40% discount) and using the dividend yeild would be a buy price of $20.60.

The current share price is at $34 so we need a big decline before we can get this stock at a good price. One best left alone at this stage.

Good Luck Trading.

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