Wesfarmers not giving up on family
Wesfarmers boss Richard Goyder has two problem children in Target and the Coles liquor division. On Wednesday he confirmed they wouldn’t be banished from the retail portfolio. Instead, the value of Target would be slashed by $680 million in the balance sheet while a provision of $94 million will be made against the liquor assets.
The question this poses is will these amounts be enough?
Let’s take Target. Even after the write-down, its book value still sits at a fairly lofty $2.3 billion – for a business that will this year make about $85 million of earnings before interest and tax. In other words, the money tied up in this business could make more if it was put into a bank deposit. Outside analysts reckon Target is worth closer to $1.5 billion – based on historical and near-term projected profits. Clearly Wesfarmers takes the view that Target is set to improve its performance – but one could argue that it would need the earn closer to $200 million to justify its new book value. Sydney Morning Herald – Read more…
The question this poses is will these amounts be enough?
Let’s take Target. Even after the write-down, its book value still sits at a fairly lofty $2.3 billion – for a business that will this year make about $85 million of earnings before interest and tax. In other words, the money tied up in this business could make more if it was put into a bank deposit. Outside analysts reckon Target is worth closer to $1.5 billion – based on historical and near-term projected profits. Clearly Wesfarmers takes the view that Target is set to improve its performance – but one could argue that it would need the earn closer to $200 million to justify its new book value. Sydney Morning Herald – Read more…
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