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[sharechat] WRI Interim - Snoop Preview

From: "" <>
Date: Sat, 21 Feb 2004 23:29:19 +1300

I am no insider at WRI, so everything that follows is based in 
information already posted in the public domain.   The actual result 
comes in on Tuesday, so that will give you all a day to digest what I am 
saying and allow everyone to have a good laugh at me if I get it wrong.

Interim EBIT is expected to be 20% down on last years half year result 
of $6.8m.   I predict this will come in 'on budget' at $5.4m.  However 
last years half year result included one off costs, and the operational 
half year result was actually $9.6m.   So the projected figure of $5.4m 
is actually a 44% reduction in operational profitability.    I would say 
that ties in with Macdunks truck driver report of a 30% dive in trade 

Just to make it quite clear, WRI do not do insurance so the floods will 
not affect them directly.   However, they will benefit (sic) if farmers 
have to sell excess stock through their rural livestock arm.   And if 
farmer Jenks needs a new pair of gumboots to check out her flooded 
paddocks with!  Of course the breaking of the drought in areas that 
were not flooded will also benefit WRI.   My prediction is that second 
half profits will be projected as coming in down only 10%, and that 
makes $13.0m NPAT projected profit for the second half.  If first half 
profits after tax are down to around $3.3m, as I believe they will be, 
then full year profit looks forecast to come in at around $16.3m, a 9% 
reduction on FY2003's $18.5m.

Half year earnings may be only 2.4c/share, but the positive cashflow is 
much more than this (1c per share alone will be lost in F1/2Y2004 due 
to equity accounted profits from the investment in Genesis Research) 
allowing an interim dividend of 3.5c/share (unchanged).    $16.3m 
equates to a profit of 12c per share.   While this is enough to keep the 
dividend unchanged, I believe that MD Freeth will announce an 
anticipated cut in final dividend from 8c/share to 6c/share.  That will 
shock the market, but bring the actual dividend paid back to 80% of 
earnings which is a long stated Wrightson policy.    It will also save 
Freeth the indignity of cutting the dividend two years in a row as I 
believe FY2005 will be tougher than FY2004.

The principal reason for the dividend cut will be so that WRI can retain 
some earnings to invest in the spin off from Genesis Research 
'Agribusiness Biosciences'.  I believe WRI will end up as 30% 
shareholders in this business, and will quit the medical side of Genesis 
Research entirely.  The agribusiness side of Genesis Research will 
need a three year budget of some $30m, so that means perhaps a $3m 
investment from WRI (as a 30% shareholder) every year for the next 
three years.   There go the WRI retained earnings!

At the current price of $1.30, a total dividend of 9.5c per share is till an 
11% gross return.  That means , knee jerk reaction aside, I don't 
expect the share price to move much.   Watching from the sidelines will 
be Craig Norgate and Co.   Don't be surprised if Norgate puts in 
another opportunistic bid to top up his own shareholding!    

In summary, if the WRI share does move down in price next week I 
predict that far from being a signal to exit, Mr Market will be providing 
us with another excellent entry price opportunity.

(author of the 'Snoop' preview)

discl: hold WRI

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