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WES are scheduled to provide interim results on 15 February 2024.
Given the dramatic fall in Spodumene and Lithium Hydroxide prices since the last update it was worth having a look at the valuation.
WES estimate 190,000t of Lithium Hydroxide production by FY26.
Estimate market value of LiOH in FY26 at $14,000/t (with $7,000/t production cost) infers eps from lithium at $0.15. This is a substational reduction from only 6 months ago.
Also, the increasing gas input costs to the CEF Division were flagged 6 months ago so expect this to negatively impact the upcoming results.
I wouldn't expect the retail division sales to compensate for the above headwinds in the current retail environment.
FY26 EPS = $2.32. With a PE of 26.7 Share Price FY26 = $61.90.
Current Valuation $46.50.
The current run in the WES share price could only be justified based on Lithium prices of 6 months ago.
The current share price appears to have run ahead of reality.
I'll go out on a limb and predict the upcoming results to disappoint the market.
Wesfarmers released some impressive FY23 results last week.
Revenue up 18%. NPAT up 4.8%. All in a subdued retail trading environment.
Some really interesting discussion followed the results presentation regarding the Mt Holland project. I have outlined the timeline of events as per the discussion:
FY24
Commissioning and ramp up of concentrator Oct/Nov 2023.
Produce 50,000t (WES share) spodumene concentrate in FY24
FY25
Produce 190,000t (WES share) spodumene.
Commission hydroxide refinery late CY24.
Lithium hydroxide available for sale by early to mid CY25.
FY26
Lithium hydroxide refining.
Based on the above timeline, my take on the future revenues is outlined below. I am no lithium expert so please correct me if the numbers are horribly wrong.
FY24
50,000t x $4,000/t (net margin) = $200M
FY25
190,000t x $4,000/t (net margin) = $760M.
FY26
8t spodumene produces 1t lithium hydroxide, therefore
190,000t/8 = 23,750t lithium hydroxide x ($50,000/t - $7,000/t) $43,000/t net margin = $1B.
The lithium operation has the potential to increase profits by 40% in FY26.
I remember Ben Clark (TMS Capital) saying that the market is not pricing the lithium operation into the WES share price.
Based on this I would have to agree.
Lithium experts please feel free to rip this apart.
Director on-market trade for WES. Always interests me these 'relative' small trades from directors who you assume have significant wealth behind them. Maybe its false assumption....
And I say small trade in jest... as dropping $20k is significant for others....
30-May-2023: 2023 Strategy Briefing Day Presentation
View The Webcast: https://edge.media-server.com/mmc/p/6iyimda9
02-May-2023: Macquarie Australia Conference Presentation and Address by MD, Rob Scott
For all the latest WES results and presentations: Results & presentations (wesfarmers.com.au)
Today's 2023 Strategy Update (top link above) is long - at 104 slides - so I'm just going to reproduce the 4 that sum up this company best - in my opinion:
So this isn't your average microcap or nanocap stock that is largely under the radar and could go to zero or multibag. No, this one is a large cap that just keeps grinding higher over time. The best way to check how a company has looked after their shareholders is to look at their TSR - Total Shareholder Return - which include share price appreciation and dividends, and assumes that all dividends were reinvested back into the company using their DRP. In this case they also assume full participation in all of WES' capital management initiatives over the years.
Their TSR has well and truly outperformed the All Ordinaries Accumulation Index (XAO) which is represented there by that grey line. In fact, they've absolutely smashed it. Over that period, the All Ords Accumulation Index has performed almost identically to the ASX200 Accumulation Index (XJO). They both include reinvested dividends - that's the "accumulation" bit. Over shorter time periods there can be a little bit of divergence between the XAO and the XJO Indices, but they tend to have very similar returns to each other over decent time periods, like decades. WES, however, has done a LOT better than both of them.
Disclosure: I hold WES shares in real life and here on Strawman.com.
OK, one more slide:
How's this for a mission statement: Their primary objective is...
Tick.
30-May-2023: $58.77 is my 3 year price target for WES from here, so by May/June 2026. They should do that easily, and go on from there.
This company is always evolving - and they are now creating a Health Care division with the acquisition of API in March 2022.
Source: 30-May-2023: Wesfarmers 2023 Strategy Briefing Day Presentation
The following shows how they have performed so far, in terms of Total Shareholder Returns (TSR):
Have a look at their Mission Statement (below): Their Primary objective is to provide a "satisfactory return to shareholders".
They have certainly delivered on that objective.
Not a microcap or nanocap with multi-bagger potential, but a large cap which keeps delivering above-market TSRs for their shareholders.
I hold WES shares both here and IRL.
Further Reading: Results & presentations (wesfarmers.com.au)
A few facts on the Mt Holland project
* Capex of $950m
* FID approved July 2021
* Production begins 2024
Not many facts on EBIT or financials. Will need to go back to Kidman announcements to find the information although most of that will be out of date.
not held but thinking of taking a position.
While the share prices of lithium miners/developers continue to outperform the broader market (PLS, LTR, CXO, IGO) it seems Wesfarmers is being left behind.
It seems the market has forgotten the takeover of Kidman Resources a few years ago when lithium was at the bottom of the cycle.
Time to do some research into Wesfarmers lithium asset while market is still asleep.
Hi gang
wondering what people's thoughts might be on the medium term impact of Amazon's Australian ramp up on Wesfarmer's top and bottom lines ? I remember Rob Scott saying that there is nothing that Bunnings (50% of sales) sells that you can't purchase online - and that was over a year ago. Might be jumping at shadows, but sometimes 'only the paranoid survive'.
Wesfarmers today announced that it has received confirmation from the Australian Competition and Consumer Commission (ACCC) that it will not oppose Wesfarmers’ proposed acquisition of Australian Pharmaceutical Industries Limited (ASX:API). Deal expected to go through end of Q1 2022.
Finally moving ahead. WES wasting too much effort back and forth on this acquisition IMHO but yes pharma is a rapidly growing space with all the COVID fears, ageing population, vitamin supplement market.
Disc: I hold.
Curious. I'm wondering if they are trying something broader with this.
Woolworths Group (ASX: WOW) has today thrown its hat in the ring to acquire Australian Pharmaceutical Industries (ASX: API) for $872 million, representing a 13 per cent premium to the offer on the table from retail rival Wesfarmers (ASX: WES).
What? I thought this was a done deal already?
Moving average down price range:
Buy at $55
Sell at $60
WESFARMERS Returning $2 per share ex18/11/21
Flybuys loyalty program (linked to many credit cards), are now to be offered at Bunnings and Officeworks. Probably the future priceline too.
Interesting move, in my opinion a wasted opportunity for Wesfarmers.... unless Flybuys are offering some sort of deal where points are traded for lawnmowers and laptops?
Through a deal with Kitchenwarehouse.com.au, Bunnings is offering online purchases of kitchen equipment and utensils from crockery to blenders. Basically Bunnings is becoming an Amazon marketplace.
This is going to be interesting. It won't be a stretch to be selling washing machines, bed linen, kids toys, laptops through Bunnings.
Bunnings is offering their carparks as vaccination centres. When will they open a pharmacy in the corner of their stores? Or maybe it's Officeworks that needs the pharmacy for the busy professionals to pick up a script with their replacement printer?
Business acquisitions are good if synnergistic. Aust Pharmacy should be one of these.
However I'm actually more excited by their investment in Artifical Intelligence into the business. This should allow strong insights into product segmentation, customer spend, distribution economies of scale of merchandise and dare I say it staff,
Artificial Intelligence PLUS synnergy of merchandise base PLUS massive reach of physical stores, WES is a winner in my opinion.
PE currently 27.7, quite high though.
Disc: I bought at $55
04-Aug-2020: COVID-19 update - Trading restrictions in Victoria
[I hold WES shares]
22-May-2020: Kmart Group update and expected FY20 significant items
Kmart Group update
Significant items expected in the 2020 full-year results
[...click on link above for further details...]
Disclosure: I hold WES shares.
31-Mar-2020: WES: Wesfarmers sells 5.2 per cent of Coles Group
Also: COL: Sale by Wesfarmers of 5.2 per cent of Coles Group
Following the sale, Wesfarmers retains a 4.9 per cent interest in Coles and has agreed to retain its remaining shares in Coles for at least 60 days from today.
COL & WES also remain 50/50 JV partners in Flybuys and will continue to work together.