Hard to pick holes in this report, a little bit softer in the second half but this has been ignored in favour of the bullish outlook. The free cash flow is a real positive but there is more competition for it now. Dividends, debt interest and debt repayments will compete for free cash flow.
Management is clearly comfortable with maintaining a net cash deficit and even increasing it with the recent acquisition, so there has been a slight shift in the risk profile. The recent debt draw down and special dividend will of course boost returns on equity. Unfortunately there are no details in terms of cost or financial benefit for the Brandsystems International acquisition so we can only assume it is small.
The final dividend is lower than the previous year. I think it is sensible to reset the payout ratio as it was creeping up (special dividend excluded) over time and a lower payout ratio will give more flexibility for debt repayments and/or acquisitions. Wellcom has returned average earnings growth of around 9% over the past dozen years or so. It has been a real wealth builder for those who have stayed the journey. A forecast of 10 to 15% over the next year will be a terrific result if it is met.
WLL Price at posting:
$4.86 Sentiment: Hold Disclosure: Held
