Financial analysis of Webster Limited


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Group Project

1. Describe what the company’s main businesses are.

Webster Limited has multiple specialisations in a diverse range of business sectors over a period spanning 182 years. It is considered Australia’s fourth oldest company - of which started from being a supplier of materials and services to mainly farmers.

Webster Limited is a company which is more known for its business within the agricultural industry. Webster has two operational divisions all of which are based within Australia. Both ‘Field Fresh Tasmania’ and ‘Walnuts Australia’s, are divisions which are heavily focussed on the exporting of onions and in-shell walnuts. Webster is currently the largest walnut producer with approximately 1,365 hectares of land for growing of walnut orchards. Today, Webster is considered Australia’s largest grower and exporter of onions, but also approaching a status of being an exporter and high-quality producer of in-shell walnuts. Thus, Webster has made an imperative marketing decision to spread the word of its production of safe food products but also a reliable producer.

Field Fresh Tasmania, is known as Webster Limited’s onion sector and has exported brown and red onions for around 40 years. Over the recent couple of years, Webster Limited has invested the advancement of production technology in order to labour workers. Field Fresh Tasmania incorporates science and horticulture technology into its production of onions to insure that it will remain in its place as a diverse horticultural specialist within its industry on a global scale. Recently Field Fresh Tasmania held an official factory reopening which was attended by about 50 different stakeholders. Luc Delabie is currently the European Business Manager who is from Belgium, Delabie is responsible for the quality from different fields based on consistency. During March, brown and red onions are of high standards and is experiencing regular autumn weather and crop conditions. The brown onions were of 60% completed during March, but has fortunately been harvested and completed recently due to the Autumn season almost at a finish.

Walnuts Australia, on the other hand is considered the largest orchard owner and producer of walnuts within the Southern Hemisphere, this is due to the fact that they produce 6500 to 7000 tonnes of in-shell walnuts. It is estimated that by 2016, the company will produce around 11000 tonnes of in-shell walnuts. Walnuts Australia strives from exporting approximately 85% of their product around the world to mainly China and other European countries. With more and more healthy eating habits being adopted around the world, the demand for walnuts are said to expand greatly due to their health benefits. Thus, as a response, over the next 5 years the company will seek upon expanding their orchard estate in Riverina by 1000 hectares. Currently as of March 2014, Walnuts Australia possesses a walnut orchard based in Leeton this is where walnuts are firstly harvested by machinery and then processed to by large processing machinery to filter out debris from walnuts. After filtration, walnuts are then transferred to the newly expanded drying shed based in Leeton, this is where high tech machinery is used to automatically dry and transfer any walnuts to be ready for transportation. Furthermore, Walnuts Australia has invested in a brand new quality assurance facility to insure walnuts are meeting the standards of consistency and colour. Much of the processes are automated, however manual labour is also involved within the process such as inspection.

2. Answer the following:

a. Who is the chairman of the company, and what is his background.

The chairman of Webster Limited is currently Roderick Roberts - who worked his way up the heirarchy from Spetember 1994 where he was appointed with the role as non-executive director. Later in the years between October 1996 and October 2001, Roberts was officially managing director. Following that month, his chairman position was appointed from October 2001 to August 2007 and ever since November 2008. Roberts, has also had experiences within senior roles of primary manufacturing and banking sectors. He has such experiences including Head of Corporate Finance at Bain Co Director of County NatWest Australia Limited and Chairman Harris Co Limited. Roberts is a director of Tassal Group Limited Deputy Chancellor of the University of Tasmania. His other roles include being a Council Member of Australian Institute of Company Directors and director of multiple proprietary companies. It can also be noted that Roberts is one of the individuals found on the audit and risk committee and the remuneration committee, further he is also chairman of the nominations and appointments committee.

b. Who is the Chief Executive Officer of the company, and what is his background.

Currently, the Chief Executive Officer of Webster Limited is John Hosken. Hosken is highly experienced within the field of sales and marketing mainly due to having 20 years of experience. For this reason, the last 4 years Hosken has been part of the Sales and Marketing scetor of Webster Limited, thus resulting in his part of the Senior Executive Group. Hosken’s primary role as a member of the Sales and Marketing team was to ensure full maximisation of shareholder returns and to provide Webster Limited steady a position within its industry. He also has experience within the field of horticulture and agriculture whilst growing his skills within export marketing, furthermore he is also studying business at UTAS. Due to these reasons, Hosken has recently received promotion to become the Chief Executive Officer of Webster Limited.

c. How many shareholders does the company have?

The company currently has 1365 ordinary shareholders, and 198 cumulative preference shareholders as of 30th June 2013.

3. Calculate the following, based on the current share price (i.e. as at 18th March 2014):

a. Market capitalisation at 18th March 2014. As at 18th March 2014 the company has issued 137,987,365 fully paid ordinary shares listed at price of $1.24 per share. Market Capitalisation = Number of shares x Share price = 137,987,365 x $1.24 = 171,104,332.6 The Market value of the company as at 18th March 2014 is $171,104,332.6.

b. PE multiple at 18th March 2014 (based on full-year earnings for the latest full-year results reported)

Based on the 2013 annual report,

Basic Earning per share were $0.0562 at a share price $1.24.

PE Multiple = PE Ratio = Market Value per share/Earnings per share

= 1.24/0.0562 = 22.0641 times (4 decimal places)

c. Dividend yield at 18th March 2014 (based on the dividend for the latest full-year earnings reported).

Based on the 2013 annual report, Annual dividends per share were $0.025 at a share price of $1.24.

Dividend yield = Annual Dividend per share/ Price per share = 0.025/1.24 = 0.0201612…. = 2.0161% (4 decimal places)

d. Enterprise value (EV) at 18th March 2014. (based on the latest set of full-year results)

EV + Cash = Interest bearing debt + Market value of OEI +Market value of equity Based on 2013 annual report,

Interest bearing debt = Current Borrowing + Non current borrowing + Non redeemable cumulative preference shares

= $109,000 + $257,000 + $567,360

= $933,360

Market Value of OEI = 0 [Given]

Market Value of Equity = Market Capitalisation

= 171,104,332.6

EV + Cash = Interest bearing debt + Market value of OEI +Market value of equity EV + 8,178,000 = 933,360 + 0 + 171,104,332.6

EV = 163,859,692.6

e. EV/EBIT multiple based on the latest set of full-year results.

EV = 163,859,692.6

EBIT = Net Profit before Income tax expense - Net Interest expense = 9,922,000 - [Interest paid (include finance leases) - Interest received]

= 9,922,000 - [-95,000 + 740,000]

= 9,922,000 - 645,000

= 9,277,000

EV/EBIT Multiple = 163,859,692.6/ 9,277,000

= 17.6630 Times

f. EV/EBITDA multiple based on the latest set of full-year results.

EV = 163,859,692.6

EBIT = 9,277,000

EBITDA = EBIT + Depreciation + Amortisation

= 9,227,000 + 2,827,000 + 252,000

= 12,306,000

EV/EBITDA = 163,859,692.6/12,306,000

= 13.3154 Times

g. The P/NTA multiple based on the latest set of full-year results. (NTA = Net tangible assets.)

Net assets= $102,971,000

Intangible Assets= $4,758,000.

NTA =Net assets - Intangible assets

=102,971,000 - 4,758,000


NTA per share= $98,213,000/ 137,987,365

= $0.7117 per share

Price per share= $1.24

P/NTA = 1.24/0.7117

=1.7423 Times

4. Calculate: [for at least the last three (3) years.]

a. Days inventory

For 2013

Begining inventory = $8,030,000 Ending inventory= $12,034,000

COGS =$ 26,453,000

Inventory Days = 365 x (Beginning Inv + Ending Inv/ 2)/ COGS = 365 x $10,032,000/ $26,453,000

=138.4 days

For 2012

Begining inventory = $4,033,000 Ending inventory= $8,030,000

COGS =$21,418,000

Inventory Days =365 x (Beginning Inv + Ending Inv/ 2)/ COGS

=365 x $6,031,500/ 21,418,000

=102.8 days

For 2011

Begining inventory = $3,675,000 Ending inventory= $4,033,000

COGS =$ 19,685,000

Inventory Days = 365 x (Beginning Inv + Ending Inv/ 2)/ COGS

=365 x $3,854,000/ $19,685,000

=71.5 days

b. Days accounts receivable

For 2013

Begining A/R = $23,707,000 Ending A/R =$14,224,000 Sales=$ 41,119,000

Inventory Days = 365 x (Beginning A/R + Ending A/R/ 2)/ Sales

=365 x ($18,965,500/ $41,119,000)

=168.4 days

For 2012

Begining A/R = $21,155,000 Ending A/R = $23,707,000

Sales=$ 34,778,000

Inventory Days = 365 x (Beginning A/R + Ending A/R/ 2)/ Sales

= 365 x $22,431,000/ $34,778,000

=235.4 days

For 2011

Begining A/R = $10,039,000 Ending A/R = $21,155,000

Sales=$ 35,708,000

Inventory Days = 365 x (Beginning A/R + Ending A/R/ 2)/ Sales

= 365 x $15,597,000/ $35,708,000

=159.4 days

c. Days accounts payable

For 2013

Begining A/P=$8,828,000$ Ending A/P= $8,884,000


Days A/P = 365 x (Beginning A/P + Ending A/P/ 2)/ COGS

= 365 x $8,856,000/$26,453,000


For 2012

Begining A/P=$11,293,000 Ending A/P= 8,828,000$


Days A/P = 365 x (Beginning A/P + Ending A/P/ 2)/ COGS

= 365 x $10,060,500/ $21,418,000


For 2011

Begining A/P= $7,234,000 Ending A/P= $11,293,000

COGS=$ 19,685,000

Days A/P = 365 x (Beginning A/P + Ending A/P/ 2)/ COGS

= 365 x $9,263,500/ $19,685,000

= 171.8days

d. Operating cycle

For 2013:

Operating cycle = Inventory period + Receivables period

= 138.4 +168.4

= 306.8days

For 2012:

Operating cycle = Inventory period + Receivables period

= 102.8 +235.4

= 338.2days

For 2011:

Operating cycle = Inventory period + Receivables period

= 71.5 +159.4

= 230.9 days

e. Cash cycle

For 2013:

Cash cycle = Operating cycle - Payables Period

= 306.8- 122.2

= 184.6 days

For 2012:

Cash cycle = Operating cycle - Payables Period

= 338.2- 171.4

= 166.8 days

For 2011:

Cash cycle = Operating cycle - Payables Period

= 230.9- 171.8

= 59.1 days

Graphs for each year

For 2013:

For 2012:

For 2011:

5. Calculate WACC for the company, assuming a pre-tax cost of debt of 7.0%. WACC = ED + E(Re) +DD + E(Rd)(1 - t) where: E = Market value of equity D= Market value of debt

Re= Cost of equity

Rd= Cost of debt

t = corporate tax rate

Market Value of Equity = Market Capitalisation = 171,104,332.6 Market Value of Debt = Interest bearing debt = 0 (Given that 171,104,332.6 > 933,360, where it was stated when Cash> interest bearing debt D = 0 ) 

Cost of Debt = 7.0% [Given] Using CAPM, Required rate of return on Equity= risk free rate + Beta equity (avg return in market - return of risk free investment) Rf = 3.96% [@14/04/2014 11:52pm Bloomberg] Risk premium/ (Rm - Rf) = 6% [Given] B equity = 1.1 [Given] R equity = Rf + B equity (Rm - Rf) = 3.96% + 1.1 (6%) R equity = 0.1056 Therefore Cost of Equity = 10.56% WACC = ED+E(Re) +DD+E(Rd)(1 - t)

= 171,104,332.6 0 + 171,104,332.6 (10.56%) +00 + 171,104,332.6 (7.0%)(1 - 0.3)

= 10.56%

6. Estimate the value of one share in the company, using the Gordon Dividend Growth Model. Would you invest in the company? Why or why not?

Based on our analysis of Webster, we can estimate that Webster Ltd is expected to grow. With investments in the yet to mature existing orchards, we can expect increased returns from a large increase in harvested walnuts, in advance of forecast. Value adding plant and the purchase of land sufficient to expand the orchard estate by around 900 ha have already been put in place. Webster has also ensured an appropriately low financial risk with directors set to strengthen the company’s equity capital base. The company is expected to perform well in the 2014 financial year.

With majority of its business in export, the depreciation of the exchange rate should provide additional stimulant to Webster’s activity when trading with foreign businesses. In addition to this, RBA has also lifted its forecasts for both economic growth and CPI inflation for the year to December where “growth is thought likely to strengthen a little in 2014” [RBA, Feb 2014].

From this, we can conclude the Webster Ltd will perform well therefore have a growth rate at 3.2%, higher than that of current inflation rate [ 2.9% @ Trading Economics 1:04 23/4/2014]

If Webster Ltd is set to perform well constantly, according Gordon’s model, its dividends will be that of constant growth dividend with a growth rate of 3.2%.

Using CAPM, Required rate of return on Equity= risk free rate + Beta equity (avg return in market - return of risk free investment) Rf = 3.96% [Ten year government bond rate@14/04/2014 11:52pm Bloomberg] Risk premium/ (Rm - Rf) = 6% [Given] B equity = 1.1 [Given] R equity = Rf + B equity (Rm - Rf) = 3.96% + 1.1 (6%) R equity = 0.1056

Market value of share today = Present value of all expected cashflow to be received from share (dividend) discounted at rate of return

P0 = D/(Re - g)

= 0.015/(0.1056 - 0.032)

= 0.2038

A share will be worth 0.2038 if bought today.

If i was to invest in Webster today, my analysis will be based on NPV

NPV = Initial investment + Future Cashflow from dividend = -outlay + D (Re - g)-1

= -0.2038 + 0.015(0.1056 - 0.032)-1

= 0

[0 NPV, Indifferent to accepting or rejecting the project]

As an investor, based on the result from NPV I would be indifferent towards investing or not in Webster Ltd. With a 0 NPV, there will be no change in shareholder value if invested into. Therefore, I will not accept or reject the investment of Webster Ltd.

7. Suppose you bought 10,000 shares in February 2014 in Webster.

a. What was the total amount of dividend that you will receive when the company pays its interim dividend in April 2014?

Based on the latest half year reports, Webster limited is planning to pay an interim dividend of $0.015 per share. Assuming we own 10,000 shares we will received a total Dividend payment of $150.

b. When was the ex-dividend date?

The ex- Dividend date was 31 of March 2014.

c. When was the date of record?

The record date for determining entitlement to this dividend was 4 of April 2014

d. What date was the dividend paid?

The Interim Dividend was paid the 30 of April 2014.

e. What amount of franking credits did you receive

Div * tc / (1 - tc) * fp

Taking 30% as the company tax rate(tc), and 1 as the franking proportion(fp).The amount of franking credits received is 64.29

f. Does the company have a Dividend Reinvestment Plan in operation?

Webster limited have already established a Dividend Reinvestment Plan, but will not yet be operational. Under the DRP any fully paid shareholder will be eligible to receive additional shares in exchange of all or part of their dividend payment.

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