Westfield grows offshore

He is a tribute to the sort of energy, imagination and drive which can help a poor migrant beat the odds to become the second richest man in the country with a personal wealth of over $2bn amassed by founding one the country's soundest companies, Westfield Holdings.

Westfield is considered a cornerstone stock. This means that it's not only a blue chip investment but a highly respected performer with a proven track record. And what a record! Profits have increased every year for 40 years.

Expansion strategy

The share price performance is equally impressive. Since June 2000 the stock has increased more than 40%, driven by Westfield's offshore expansion strategy.

Its beginnings were humble enough. The first project was in Blacktown, a suburb in Sydney's west, in 1959 with a dozen shops and one supermarket. The company is now one of the largest shopping centre groups in the world with assets worth $22.5bn. It dominates the regional mall market in California, has a portfolio in the UK and recently acquired a 99-year lease over the World Trade Centre in New York.

The company's strategy is simple - build shopping centres in densely populated cities or regions. In the United States, Westfield owns 39 malls and US operations make up 49% of revenue but this is expected to decrease over the next few years to about 42% as European operations begin to contribute revenue streams.

The UK's seven-centre portfolio, valued at $2.1bn is not yet profitable but these shopping centres are expected to serve as a springboard into the rest of Europe.

Management has proved more than capable of making wise acquisitions in the US and we have no doubt it will do the same in Europe.

The company's business model has worked beautifully in Australia, and will perform even better overseas where the potential to grow is enormous due to the size of the markets.

Furthermore, Australia has a high proportion of retail space to demand. This means that successful retailers need to become very efficient. When retail managers like Westfield go overseas they tend to perform well due to the experience gained back home.

The company has many attributes such as remarkable management, great business strategy and is a very efficient operator. It is however faced with a variety of risks.

Slow economy

One is its share price and the possibility that it already includes the markets expectations of overseas earnings. Second, retailers are severely punished in slow economic periods.

Third, government legislation to provide greater security for retail tenants could impact negatively on the company.

But those fears all seem remote when you look at Westfield's financials. It sure is a pretty picture. Sales were up 3% in the December half-yearly report on the corresponding period last year despite difficult times in retailing.

NPAT was also up 13.5% to $76.7m. The company also has $87.5m in cash. Its debt to equity ratio is 1.2 but we're not the slightest bit concerned as we trust the money is in good hands.

Since our last full review in issue 80 (Accumulate - $13.12) the share price has moved up 2.5%. We believe that Westfield will continue to grow domestically and overseas and that its business model coupled with efficient management practices will drive the stock higher. LONG TERM BUY.