Curragh Expansion The Big News At Wesfarmers AGM

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This story features WESFARMERS LIMITED.
For more info SHARE ANALYSIS: WES
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

The major announcement at the annual general meeting of Wesfarmers
((WES)) was the news the Curragh coal mine will be expanded from its
current output rate of 6.2-6.7 million tonnes of exports to 8.0-8.5
million tonnes, at an expected capital cost of $286 million.

According to Deutsche Bank the expansion adds around $1.30 per share to
its net present value of Wesfarmers, as it expects the expansion will
add around 30% to earnings before interest and tax for the resources
division from FY13, which equates to around 4% in total net profit
after tax terms for the group.

Factoring this in sees Deutsche lift its valuation on the
stock to $37.60 and this is where it has set its price target,
up from $31.00 previously. Its earnings forecasts are unchanged however,
as the company has not updated guidance from that given at its investor
day in late October.

The price target increase by Credit Suisse was less dramatic, moving
from $25.00 to $25.85, reflecting increases to its earnings
forecasts of around 3% beyond FY12 on the Curragh expansion news and
some minor adjustments elsewhere in the resources division. With the
share price above its target, Credit Suisse continues to rate Wesfarmers
as Underperform on valuation grounds.

The other announcement of interest by Wesfarmers was the decision to
commence a FEED study into expanding ammonium nitrate output at Kwinana
by 260,000 tonnes per year, which would lift output to 780,000 tonnes
and cost up to $500 million. Any decision is 12 months away, but as UBS
notes, it does suggest management is positive on the outlook for
ammonium nitrate, which is used in the iron ore production process.

Following the update, UBS has actually cut its price
target on the stock to $25.80 from $26.35 while retaining its view the
stock is fully priced at current levels, especially leading into the
Christmas period given what should be more challenging competitive
sales numbers for its discretionary retail operations and what are
currently high market expectations for Coles in general.

Overall the FNArena database shows Wesfarmers is rated as Buy three
times, Hold five times and Sell twice, with an average price target of
$28.78, up from $27.96 prior to the AGM. The target reflects consensus
earnings per share (EPS) estimates, according to the database, of 128.3c
in FY10 and 170c in FY11.

Shares in Wesfarmers today are higher and as at 2.05pm the stock was up
62c or 2.3% at $28.05, while over the past year it has traded between
$14.81 and $28.97.
 

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