Should I Buy Wesfarmers shares, WES shares, Wesfarmers Shares, WES ASX

In the past year, Wesfarmers shares have not only completely recovered from the COVID crash but are now pushing all-time highs. With Wesfarmers recently entering into the retail pharmacy space is now the time to buy WES, we take a look and answer Should I Buy Wesfarmers Shares in 2021?

Wesfarmers Share Price

We can see that WES was initially hit hard by the COVID crash which plummeted the share price by -37.25%. Since then Wesfarmers shares have not only recovered but have pushed all-time highs.

Over the past year, Wesfarmers shares are up 27.97%. This has been largely in line with the market average. Wesfarmers shares have proven to be a solid long-time play for investors having returned 105.08% over the last five years.

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The current WES share price is $58. Which is at the upper end of its 52-week range of $43.50-59.63.

Should I Buy Wesfarmers shares, WES shares, Wesfarmers Shares, WES ASX
Should I Buy Wesfarmers Shares: Share Price

Should I Buy Wesfarmers Shares: About

WES’s Principal Activity is the retailing of home improvement and outdoor living products and supply of building materials, retailing of general merchandise and apparel products, retailing of office and technology products, manufacturing and distribution of chemicals and fertilizers, industrial and safety product distribution, gas processing and distribution and management of the Group’s investments. Source: Market Index

Started in 1914 Wesfarmers is a giant Australian conglomerate company that owns many iconic Australian brands including:

  • Bunnings
  • Kmart
  • Target
  • Catch.com
  • Officeworks
  • WorkWear
  • Coles
  • And many more

Coles Group was a demerger from Wesfarmers in 2018, which was a historic event for the company.

The Wesfarmers portfolio is the largest strength for the business, we see leading companies that are leaders in their space including Bunnings and Officeworks. These great businesses afford Wesfarmers an unmatched economic moat and have allowed them to build an empire.

Wesfarmers being a conglomerate company will often buy and sell a number of companies adding value to its portfolio.

Should I Buy Wesfarmers Shares: Dividend History

WES shares typically announce a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (interim dividend) and September (final dividend).

Should I Buy Wesfarmers shares, WES shares, Wesfarmers Shares, WES ASX, WES Dividend

WES shares have paid biannual dividends every year since 1985. This includes the 2008 GFC and COVID recession. WES shares pay dividends that are fully franked. The current average yearly dividend for WES shares is $1.83 giving them a solid net yield of 3.16% or a gross yield of 4.51% at the current share price.

Should I Buy Wesfarmers Shares: Investor Sentiment

After surveying 100 Investors about their current WES shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;

Should I Buy Wesfarmers shares, WES shares, Wesfarmers Shares, WES ASX

The results from this survey show there is currently no strong investor sentiment on WES shares. So how much are WES shares worth? Let’s get into it.

Should I Buy Wesfarmers Shares: Fundamentals

Market Cap$65,762,734,036
Shares Issued1,133,840,242
ASX Rank8
PE34.94
EPS$1.66
Volume 4W Avg1,576,430
VWAP$57.975
PEG8.1x
NTA per Share$5.08
ROE19.6%
Debt$1.991 Billion
Equity$9.611 Billion
Should I Buy Wesfarmers Shares: Fundamentals

Based on current fundamentals WES seems slightly overpriced given a price multiple of 34.94x. This is above the usual market average of 15-20x, but is in line with the market’s current inflated average post COVID. Wesfarmers shares are the eighth largest listed company in terms of market capitalization.

Wesfarmers have an excellent ROE of 19.6%. Their debt of $1.991 Billion is well covered by operating cash flow.

Financials

In February WES released their half-yearly results with the following highlights:

  • Revenue from continuing operations: 30.846 Billion, up 10.5%
  • Profit after tax attributable to members:
    • From continuing operations excluding significant items: 2.083B, up 7.4%
    • From continuing operations: 1.622B, down -16.4%
    • From discontinued operations: 75M, FY19: 3.570B
  • Net profit for the full-year attributable to members: 1.697B, FY19: 5.510B, (down -69.2%)

Of course, WES demerged with Coles Group during FY20, so it no longer reports Coles’s financials.

Financial History

These financial results are from Wesfarmer’s 2020 Yearly report. When looking at the group’s statements we can notice a massive drop in numbers across the board from 2018 to 2019, this is related to the demerger of Coles group which occurred in November 2018.

We can see the group realized total revenues of 30.846 Billion. This was up from the 2019 results of 27.920B. Net profits were $1.697 Billion which has dropped around 16.4%

Should I Buy Wesfarmers shares, WES shares, Wesfarmers Shares, WES ASX

Technicals

The general consensus within the Technical Analysis community is currently Bearish on WES shares. The moving averages and Technical Indicators seem to indicate a Strong Sell.

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In summary, the short-term upside is likely to prevail as long as $56.5 is support. The alternative scenario is that a downside breakout of $40.7 would call for $55 and $54.1.

Here’s A Breakdown Of The Detailed Technical Factors;

NameValueAction
RSI41.732Sell
STOCH13.757Oversold
STOCHRSI19.916Oversold
MACD-0.251Sell
ADX32.323Neutral
Williams %R-79.512Sell
CCI-64.1960Sell
ATR0.3504High Volatility
Highs/Lows-0.3621Sell
Ultimate Oscillator36.397Sell
ROC-1.293Sell
Bull/Bear Power-0.3540Sell
Source: https://au.investing.com/equities/wesfarmers-limited-technical

Insider Ownership and Trading

WES is largely owned by the General Public with 76.3% ownership. Institutions own 22.6%, and individual insiders only own 0.2%. This is relatively standard for large historic corporations. And is largely in line with the ownership structure of Woolworths Group.

Should I Buy Wesfarmers shares, WES shares, Wesfarmers Shares, WES ASX

The only insider trading that has occurred in 2021 to date is the buying of 1,015 shares by non-executive director Sir Bill English. English purchased these shares at a price of $54.58 totaling $55,396 in June.

The Coles Demerger

On 16 March 2018, Wesfarmers announced their intention to demerge Coles as a separate entity. At the time shareholders received 1 COL share for every WES Share held on the record date. WES retained 15% ownership post demerger, but has since sold down its holdings and now holds a 4.9 percent stake in the retailer. 

How Have Shareholder Performed?

Post Demerger we can see both companies have performed well. WES has returned over 90% while COL has returned over 30%.

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Should I Buy Wesfarmers shares, WES shares, Wesfarmers Shares, WES ASX, WES COL Shares, Coles demerger

Wesfarmers Health Sector Play

On the 12th of July 2021, Wesfarmers released an announcement to the market detailing their proposal to acquire 100% of Australian Pharmaceutical Industries Limited (ASX:API) at a 21% premium of $1.38 per share.

API operates a portfolio of complementary wholesale and retail businesses in the growing health, wellbeing, and beauty sector. API Brands are also well recognized in Australia and will be an excellent fit for the WES portfolio.

API Brands are well recognised in Australia and will be an excellent fit for the WES potfolio.

API Brands Include Priceline Pharmacy, Soul Pattinson and Pharmacist Advice brands, and Clear Skincare clinics.

Wesfarmers Managing Director Rob Scott said the acquisition of API would provide an attractive opportunity
to enter the growing health, wellbeing, and beauty sector.

“If the Proposal is successful, API would form the basis of a new healthcare division of Wesfarmers and a
base from which to invest and develop capabilities in the health and wellbeing sector”

The proposal price corresponds to a total equity value for API of approximately $687 million. Wesfarmers is in an excellent position to cash flow this deal with their strong balance sheet.

Prophet’s Take

Wesfarmers is an iconic Australian brand and owns an excellent portfolio of strong leading businesses. Due to their proven track record and economic moat, Wesfarmers has earned a premium valuation. With this in mind at the current valuation, we see Wesfarmers reasonably priced.

Their recent proposal on API would add a string of strong businesses to their portfolio. The strong balance sheet has allowed them to move fast, and apply cash at great opportunities. With the success of this acquisition we see an excellent synergetic opportunity for the group and an excellent step into the health and beauty retail space.

We are bullish on the future of Wesfarmers shares.

Please Remember all Articles Published on Prophet Invest are Opinion Only

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