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Wesfarmers delivers strong result

Anthony Fensom  |  20 Aug 2015Text size  Decrease  Increase  |  

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Anthony Fensom is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind.


Companies covered in this report:

Wesfarmers (WES)

Origin Energy (ORG)


Wesfarmers rings up outperformance

Conglomerate Wesfarmers Limited (WES) announced on Thursday a 9.3 per cent fall in net profit after tax (NPAT) to $2.4 billion for the year to 30 June, dragged down by the sale of its insurance business and a goodwill impairment for its Target department stores.

However, excluding such items, NPAT grew by 8.3 per cent compared to the prior year, with earnings per share (EPS) up 9.9 per cent to $2.16 and return on equity rising by 0.4 percentage points to 9.8 per cent. Operating revenue rose slightly to $62.4 billion.

The Perth-based company declared a final dividend of $1.11 per share, fully franked, up 5.7 per cent on the previous year, with a full-year dividend of $2 per share.

Morningstar senior equities analyst Gareth James said the result was "above expectations" with underlying NPAT and EPS both around 5 per cent higher than anticipated.

"It was a very strong result and better than we expected. Coles increased EBIT (earnings before interest and tax) by 6.6 per cent and grew their EBIT margin also, for the seventh straight year of margin expansion," James said.

"This was particularly impressive since Aldi have expanded quite aggressively and are continuing to do so, while Woolworths are competing quite aggressively as well.

"Home improvement and office supplies showed another strong performance with EBIT growth of 11.1 per cent, the highest EBIT growth for that division for at least five years, with the EBIT margin also above 11 per cent. Most of this division is Bunnings, which remains extremely dominant and is continuing to grow strongly, along with Officeworks.

"Kmart is also doing well, with an expanded EBIT margin at 9.5 per cent and with 18 per cent EBIT growth. Bunnings and Coles comprise 80 per cent of Wesfarmers' earnings, and if you add Kmart these three businesses make up 91 per cent, so they are the key drivers. Target also seems to be turning around, which is another positive."

Outside its retail businesses, James said the group's resources and industrials divisions were struggling due to the mining downturn, but made up only 3 per cent of the company's earnings.

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