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Wesfarmers HY20 Result – Broadly Neutral But Partial Sale Of Coles Group Ltd A Positive

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Wesfarmers (ASX: WES) is an Australian conglomerate. Wesfarmers has interests in Australian and New Zealand that cover businesses such as, home improvements and outdoor living, apparel and general merchandise, office supplies and in the industrial sector with businesses in chemicals, energy and fertiliser lithium and industrial safety products. Wesfarmers has a market capitalisation of A$51 billion.

 

WESFARMERS

 

What are the results from Wesfarmers HY20?

  • Revenue (continuing operations) for HY20 is A$15,249 million, up 6% compared with the corresponding period.
  • Net profit after tax (NPAT) (continuing operations) for HY20 is $1,210 million. Excluding the impact of the new lease accounting standard and discontinued operations, Wesfarmers’ NPAT increased 5.7%.
  • Basic earnings per share (continuing operations) for HY20 is 99.6 cents, up 5.7% per cent from HY19.
  • Fully franked interim dividend of A$0.75 per share compared with A$1.00 per share for HY19. The fall in the dividend is attributable to the demerger of Coles Group Ltd in November 2019.

Specific results on company operations are as follows:

  • EBT for Bunnings Australia and New Zealand for HY20 is $938 million, up 3.1% cent from HY19.
  • EBT for Kmart Group (continuing operations) for HY20 is $343 million, down 9.9% from HY19.
  • EBT for Industrials (continuing operations) for HY20 is $180 million, down 2.7 per cent from HY19.
  • EBT for Officeworks for HY209 is $82 million, up 3.9% from HY19.

 

What were the drivers of this result?

There was very little change in Wesfarmers ongoing business activities. Revenue was very modest (Bunnings up 5.3%, Kmart Group up 7.6%, industrials up 1.7% and Officeworks up 11.9%). The main weakness was that Target’s (part of the Kmart Group) revenue fell 4.3%.

 

Partial sale of interest in Coles Group Ltd.

Wesfarmers announced the sale of 4.9% of shares in Coles Group Limited (ASX: COL) (Coles) for total pre-tax proceeds of $1,050 million. The sale will proceed at $16.08 per share. Wesfarmers expects to recognise a pre-tax profit on sale of approximately $160 million. Following the sale, Wesfarmers will have a 10.1% interest in Coles and retains the right to nominate a director to the Coles Board.

 

What is the outlook for Wesfarmers?

Wesfarmers’ management did not provide any specific outlook for FY20. Instead, management noted:

Following a period of significant change, the Group’s portfolio of cash-generative businesses with leading market positions is well-placed to deliver satisfactory shareholder returns over the long term. Given Wesfarmers’ commitment to maintaining a strong balance sheet, and the diversity and resilience of the Group’s portfolio, it remains well-positioned for a range of economic conditions.

 

What is the market reaction?

The initial market reaction to Wesfarmers HY20 results is broadly neutral. However, Wesfarmers share price is up around 3.5% and is currently trading at around $46.80 (10.50am, 19 February). This upward movement may reflect the successful sale of Cole Group Ltd shares. Wesfarmers trades at a P/E ratio in the mid-twenties and an annual dividend yield of around 3.5% (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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