Wesfarmers Limited
WES Details
H1FY22 Financial Overview: Wesfarmers Limited (ASX: WES) provide home improvement & outdoor living, office supplies, industrial division, apparel & general merchandise, with businesses operating in chemicals, energy & fertilisers, and industrial & safety products. As reported on 18 May 2022, State Street Corporation and related subsidiaries became a substantial shareholder in WES with 5.00% voting power and ~56.71 million shares.
- H1FY22 Operating Metrics: WES reported $17.76 billion in revenue, marginally down by 0.1% and reported a statutory NPAT of $1.21 billion for H1FY22. Relative to the disrupted environment highlights, WES showcased strength in its business portfolio.
- Key Drivers: WES’ financial performance was supported by favourable results from Wesfarmers Chemicals, Energy & Fertilisers and Bunning businesses. Bunnings continued to illustrate its robust operating model and ability to meet customer demand.
Quick Financial Snapshot; Analysis by Kalkine Group
Key Risks and Challenges
Considering the global supply chain constraints and significant inflationary pressure, the consumer discretionary sector may witness a shortfall of demand and supply in the short run.
Outlook
Overall economic conditions in Australia have rebounded to a favourable zone, supported by high levels of accumulated household savings and substantial employment. WES continues to manage increasing inflationary pressures and expects to leverage economies of scale.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of WES gave a negative return of ~10.82% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $45.890 - $67.200. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the diversified portfolio of multiline retail, the company might trade at a slight premium to its peers’ EV/Sales multiple average. For valuation, a few peers like Harvey Norman Holdings Ltd (ASX: HVN), Reject Shop Ltd (ASX: TRS), Myer Holdings Ltd (ASX: MYR) and others have been considered. Given the decent financial performance in a harsh business environment, favourable financial position, rebound in consumer demand, current trading levels, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the current market price of $46.070, as of 20 May 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.
WES Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should depend on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and is subject to the aforementioned factors.
Technical Indicators Defined: -
Support: A level where-in stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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