A solid result this morning reported by Wesfarmers driven by impressive performance from Bunnings and improving conditions for Coles. Bunnings saw like-for-like sales growth of 7.8%, while EBITDA margins remain at an impressive 12%. Coles also showed signs that supermarket trends are working in their favour, with LFL sales in at 1.8% for the 4th qtr, up from +1.3% in the 3rd qtr, although margins were somewhat weaker.
The Coles performance will be key in the short term for Wesfarmers as it looks to be spun into a separate entity, while Bunnings will have a bigger impact on longer term performance given it will contribute more than half of the group earnings post-Coles. Also important to future value is the Target & Kmart brands. While the cheap option, Kmart, has been helping Wesfarmer’s growth – 5.4% LFL growth for the year – Target continues to hold the company back, although signs of improvement are showing, and the drag is lower than FY17. LFL sales in Target fell -5.1% for the last quarter, which seems bad but is much better than the 2nd quarter in FY17 where it fell -21.9%.
Wesfarmers (WES) Chart
Market Matters Take/Outlook
We find it hard to see value in Wesfarmer’s around this level. We will be more interested from a technical perspective around $47, however fundamentally we will be watching the business closely as the Coles de-merger plays out giving more specific exposure to Bunnings.
The Coles performance will be key in the short term for Wesfarmers as it looks to be spun into a separate entity, while Bunnings will have a bigger impact on longer term performance given it will contribute more than half of the group earnings post-Coles. Also important to future value is the Target & Kmart brands. While the cheap option, Kmart, has been helping Wesfarmer’s growth – 5.4% LFL growth for the year – Target continues to hold the company back, although signs of improvement are showing, and the drag is lower than FY17. LFL sales in Target fell -5.1% for the last quarter, which seems bad but is much better than the 2nd quarter in FY17 where it fell -21.9%.
Wesfarmers (WES) Chart
