Webster Limited

WBA Details
 
Lower Prices for Walnuts Impacted Revenue in 1H19:Webster Limited (ASX: WBA) is engaged in production, processing and marketing of walnuts, cotton and other annual crops & livestock.

Scheme Implementation Agreement: The company has recently entered into the scheme implementation agreement with Public Sector Pension Investment Board, wherein PSP BidCo, the latter’s wholly-owned subsidiary, has agreed to acquire all ordinary shares in Webster for a cash consideration of $2.00 per share. Another scheme of arrangement will entitle the preference shareholders of the company to $2.00 per share held. As per the release on 03 October 2019, the two schemes together imply a market capitalisation of approximately $724 million for Webster and an enterprise value of approximately $854 million. Both the schemes are expected to be implemented in the first quarter of 2020 and will offer Webster’s shareholders with accelerated value.

Dividend: On 27 June 2019, the company paid an unfranked dividend amounting to AUD 0.0900 per preference share.

Highlights of 1H19 Results: During the half year ended 31 March 2019, the company’s revenue and other income amounted to $69.1 million. Revenue for the period was impacted by an increase in agriculture revenue, offset by a reduction in horticulture revenue due to lower prices for Walnuts.Revenue for the Horticulture business was reported at $19.7 million, down on the prior corresponding period revenue of $23.6 million. Reported net profit after tax stood at $2.12 million, as compared to $3.77 million in the prior corresponding period. Walnut yield during the period went down on expectations with walnut harvest of approximately 9,700 tonnes as compared to 9,508 tonnes in 2018. Prices for the period stood 17.7%, below on prior corresponding period’s price due to excess supply in international markets. As at 31 March 2019, the company had $250 million in committed credit facilities, maturing in 2022 and undrawn facilities amounting to $147.1 million, both supporting a decent financial position.


Income Statement (Source: Company Reports)
 
Over the period, the company planted 4,129 hectares of cotton as compared to 17,162 hectares in the previous year, post disposal of Bengerang assets and decommissioning at Lake Tandou. Cotton yields during the year, were in-line with expectations at an average price above A$555 per bale. The company expanded its Almond operations through acquisition of the Sandy Valley almond orchard and an apiary business in New South Wales for $5.2 million. Expansion is expected to continue with expected plantation of additional 259 hectares by the end of the financial year. During the period, the company also acquired cropping right to 422 hectares of walnut orchards for $10 million and continued to expand its Walnut plantings with 181 hectares of additional planting at Avondale West and 125 hectares at Leeton.

FY19 Guidance: The company notified that the financial performance for the full year ended 30 September 2019 is expected to deliver a breakeven position, due to the production and pricing of walnut being impacted by drought conditions.
Stock Recommendation: The stock of the company generated negative returns of 11.81% and 15.89% over a period of 3 months and 6 months, respectively. Currently, the stock is trading at a price close to its 52-week high level of $1.960. During the first half, the company focused on improving sales through domestic channels with walnut kernel comprising the majority of the sales. Despite the ongoing drought conditions, the company continued to invest in its asset portfolio through acquisition and expansion initiatives. As per the guidance provided, FY19 full year performance will see the impact of continued drought conditions as full year earnings are expected to be close to the breakeven point which places uncertainty on any final dividend being declared for FY19. However, the recently announced acquisition of Webster by PSP BidCo is expected to offer the shareholders with enhanced certainty, going forward. Given the backdrop of the above factors, we presume that majority of the positive factors have been discounted at the current juncture and recommend a “Sell” rating on the stock at the current market price of $1.940, up 52.756% on 03 October 2019 on account of entering into Scheme Implementation Agreement with PSP Investments.

 
WBA Daily Price Chart (Source: Thomson Reuters)

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