Wesfarmers released some impressive FY23 results last week.

Revenue up 18%. NPAT up 4.8%. All in a subdued retail trading environment.

Some really interesting discussion followed the results presentation regarding the Mt Holland project. I have outlined the timeline of events as per the discussion:

FY24

Commissioning and ramp up of concentrator Oct/Nov 2023.

Produce 50,000t (WES share) spodumene concentrate in FY24

FY25

Produce 190,000t (WES share) spodumene.

Commission hydroxide refinery late CY24.

Lithium hydroxide available for sale by early to mid CY25.

FY26

Lithium hydroxide refining.

Based on the above timeline, my take on the future revenues is outlined below. I am no lithium expert so please correct me if the numbers are horribly wrong.

FY24

50,000t x $4,000/t (net margin) = $200M

FY25

190,000t x $4,000/t (net margin) = $760M.

FY26

8t spodumene produces 1t lithium hydroxide, therefore

190,000t/8 = 23,750t lithium hydroxide x ($50,000/t - $7,000/t) $43,000/t net margin = $1B.

The lithium operation has the potential to increase profits by 40% in FY26.

I remember Ben Clark (TMS Capital) saying that the market is not pricing the lithium operation into the WES share price.

Based on this I would have to agree.

Lithium experts please feel free to rip this apart.

Director on-market trade for WES. Always interests me these 'relative' small trades from directors who you assume have significant wealth behind them. Maybe its false assumption....

And I say small trade in jest... as dropping $20k is significant for others....

30-May-2023: 2023 Strategy Briefing Day Presentation

View The Webcast: https://edge.media-server.com/mmc/p/6iyimda9

02-May-2023: Macquarie Australia Conference Presentation and Address by MD, Rob Scott

For all the latest WES results and presentations: Results & presentations (wesfarmers.com.au)

Today's 2023 Strategy Update (top link above) is long - at 104 slides - so I'm just going to reproduce the 4 that sum up this company best - in my opinion:

So this isn't your average microcap or nanocap stock that is largely under the radar and could go to zero or multibag. No, this one is a large cap that just keeps grinding higher over time. The best way to check how a company has looked after their shareholders is to look at their TSR - Total Shareholder Return - which include share price appreciation and dividends, and assumes that all dividends were reinvested back into the company using their DRP. In this case they also assume full participation in all of WES' capital management initiatives over the years.

Their TSR has well and truly outperformed the All Ordinaries Accumulation Index (XAO) which is represented there by that grey line. In fact, they've absolutely smashed it. Over that period, the All Ords Accumulation Index has performed almost identically to the ASX200 Accumulation Index (XJO). They both include reinvested dividends - that's the "accumulation" bit. Over shorter time periods there can be a little bit of divergence between the XAO and the XJO Indices, but they tend to have very similar returns to each other over decent time periods, like decades. WES, however, has done a LOT better than both of them.

Disclosure: I hold WES shares in real life and here on Strawman.com.

OK, one more slide:

How's this for a mission statement: Their primary objective is...

Tick.

A few facts on the Mt Holland project

* Capex of $950m

* FID approved July 2021

* Production begins 2024

Not many facts on EBIT or financials. Will need to go back to Kidman announcements to find the information although most of that will be out of date.

not held but thinking of taking a position.

While the share prices of lithium miners/developers continue to outperform the broader market (PLS, LTR, CXO, IGO) it seems Wesfarmers is being left behind.

It seems the market has forgotten the takeover of Kidman Resources a few years ago when lithium was at the bottom of the cycle.

Time to do some research into Wesfarmers lithium asset while market is still asleep.

Hi gang

wondering what people's thoughts might be on the medium term impact of Amazon's Australian ramp up on Wesfarmer's top and bottom lines ? I remember Rob Scott saying that there is nothing that Bunnings (50% of sales) sells that you can't purchase online - and that was over a year ago. Might be jumping at shadows, but sometimes 'only the paranoid survive'.

Wesfarmers today announced that it has received confirmation from the Australian Competition and Consumer Commission (ACCC) that it will not oppose Wesfarmers’ proposed acquisition of Australian Pharmaceutical Industries Limited (ASX:API). Deal expected to go through end of Q1 2022.

Finally moving ahead. WES wasting too much effort back and forth on this acquisition IMHO but yes pharma is a rapidly growing space with all the COVID fears, ageing population, vitamin supplement market.

Disc: I hold.

Curious. I'm wondering if they are trying something broader with this.

Woolworths Group (ASX: WOW) has today thrown its hat in the ring to acquire Australian Pharmaceutical Industries (ASX: API) for $872 million, representing a 13 per cent premium to the offer on the table from retail rival Wesfarmers (ASX: WES).

https://www.businessnewsaustralia.com/articles/woolworths-takes-on-wesfarmers-in-bid-for-priceline-with--872m-offer.html?utm_medium=email&utm_source=www.thewebconsole.com&utm_campaign=BNA+News+-+December+2+2021&utm_content=36711756&c=31988872&_c=28572bc43df62bd249f97794373d8a18

What? I thought this was a done deal already?

Flybuys loyalty program (linked to many credit cards), are now to be offered at Bunnings and Officeworks. Probably the future priceline too.

Interesting move, in my opinion a wasted opportunity for Wesfarmers.... unless Flybuys are offering some sort of deal where points are traded for lawnmowers and laptops?

Through a deal with Kitchenwarehouse.com.au, Bunnings is offering online purchases of kitchen equipment and utensils from crockery to blenders.  Basically Bunnings is becoming an Amazon marketplace.

This is going to be interesting. It won't be a stretch to be selling washing machines, bed linen, kids toys, laptops through Bunnings.

Bunnings is offering their carparks as vaccination centres.  When will they open a pharmacy in the corner of their stores?  Or maybe it's Officeworks that needs the pharmacy for the busy professionals to pick up a script with their replacement printer?

Business acquisitions are good if synnergistic.  Aust Pharmacy should be one of these.

However I'm actually more excited by their investment in Artifical Intelligence into the business.  This should allow strong insights into product segmentation, customer spend, distribution economies of scale of merchandise and dare I say it staff,

Artificial Intelligence PLUS synnergy of merchandise base PLUS massive reach of physical stores, WES is a winner in my opinion. 

PE currently 27.7, quite high though.

Disc: I bought at $55

Should I Buy Wesfarmers Shares 2021? Highlights

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

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.

About

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.

Dividend History

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.

Financials

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

• Revenue: 30.846 Billion, up 10.5%
• 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%

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 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.

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.

Full Analysis if interested: https://prophet-invest.com/should-i-buy-wesfarmers-shares-2021

Proposal to acquire API at 21% premium at $1.38

20-Aug-2020:  Appendix 4E and 2020 Full-year Results   and   2020 Full-year Results Briefing Presentation   plus   Important Dates for Shareholders

Headline numbers:

• Revenue from continuing operations (A$m): 30,846, FY19: 27,920, +10.5%
• Profit after tax attributable to members:
  • From continuing operations excluding significant items (A$m): 2,083, FY19: 1,940, +7.4%
  • Significant items (A$m): (461), FY19: $0 
  • From continuing operations (A$m): 1,622, FY19: 1,940, (-16.4%)
  • From discontinued operations (A$m): 75, FY19: 3,570
• Net profit for the full-year attributable to members (A$m): 1,697, FY19: 5,510, (-69.2%)

Of course, WES spun out Coles Group (ASX: COL) during FY20, so they don't have all of that revenue from those 800 Coles Supermarkets, plus Coles Online, Coles Liquor (900 stores trading as Liquorland, Vintage Cellars, First Choice Liquor and First Choice Liquor Market and an online liquor retail offer), Coles Express (700 fuel/shop sites across Australia), flybuys (with over eight million active members, covering approximately six million households), Coles Financial Services (which provides insurance, credit cards and personal loans) and Spirit Hotels (which operates hotels in Queensland, Western Australia, South Australia and New South Wales).

WES still owns Bunnings Warehouse, Officeworks, KMart, Target, Catch.com.au, Geeks2u.com.au, plus Wesfarmers Chemicals, Energy & Fertilisers (WesCEF) which operates eight businesses in Australia and employs approximately 1,300 team members (including Kleenheat Gas, CSBP, Queensland Nitrates, EVOL LNG, Australian Vinyls, Australian Gold Reagents, Decipher and Covalent Lithium), plus Wesfarmers Industrial and Safety which operates four main businesses:  Blackwoods which distributes tools, safety gear, workwear and industrial supplies; Workwear Group which provide industrial and corporate workwear; Coregas a supplier of industrial specialty and medical gases; and Greencap, an integrated risk management and compliance company.

The main attractions for me (as a WES shareholder) are:

1. The conglomerate nature of the business where they will constantly evolve, much like a PE (private equity) firm, to take advantage of underpriced assets where they can add value and either keep them, sell them, or spin them out into a separate listed company.  The current pandemic is likely to present further opportunities to a cashed-up WES to pick up more quality assets at good prices.  In this respect they are in some ways similar to SOL (Washington H Soul Pattinsons) but also different, in that WES are more active with their asset portfolio turnover, and they also offloaded their coal assets early when the writing was first up on the wall, whereas Robert Milner at SOL is still stubbornly holding on to NHC (New Hope Coal) and is a climate change sceptic (he believes in climate change but that humans have very little to do with it).  In that respect I view WES as much more pragmatic, entrepreneurial and investable, not to mention better managed by smarter people.
2. Bunnings and Officeworks - the two jewels in the Wesfarmers crown.  The absolute best in their respective fields.  Loyal customers, and great businesses.
3. Wesfarmers expansion into battery metals, starting with lithium.  They also had a crack at buying Lynas (LYC) - for their rare earths - when the LYC share price was substantially lower - and they are rumoured to be looking closely at battery-grade nickel producers like WSA and/or IGO  (I currently hold shares in IGO, and do occasionally trade WSA shares but don't hold WSA at this point in time).  Matt Haupt, the lead PM at WLE (the WAM Leaders Fund) believes that WES want to build an integrated battery metals supply chain company and that they will not rush into purchases, but will follow their usual MO and buy quality assets at good prices when the opportunities present themselves.  In other words, it could take a few years, but we could end up with a very different looking Wesfarmers in the future that could be clearly facing the EV and clean-energy-storage markets as a one-stop-shop for battery metals and ingredients.

So, yes, I am a WES shareholder.

Further Reading:  https://www.wesfarmers.com.au/our-businesses/our-businesses

04-Aug-2020:  COVID-19 update - Trading restrictions in Victoria

[I hold WES shares]

09-June-2020:  Retail trading update

Overview:  Total sales growth by division from H2 to date:  Bunnings up 19.2%, Kmart up 4.1%, Target down 1.8%, Catch (GTV) up 68.7%, Officeworks up 27.8%.  In the calendar year to date, the group's retail businesses delivered total online sales growth of 89%.  Financial year to date total online sales across the group increased 60% to $1.9bn including Catch.

Disclosure:  I hold WES shares.

22-May-2020:  Kmart Group update and expected FY20 significant items

Kmart Group update

• First phase of Target review has identified actions to accelerate the growth of Kmart and address the unsustainable financial performance of Target
• Actions include the conversion of suitable Target stores to Kmart stores, the closure of a number of Target stores and a restructuring of the Target store support office
• Redeployment opportunities in Kmart and other Wesfarmers businesses will minimise the effect of these changes on Target team members

Significant items expected in the 2020 full-year results

• Restructuring costs and provisions in Kmart Group of approximately $120 to $170 million before tax, primarily reflecting Target store closure costs, inventory write-offs and a restructure of the Target store support office  
• Non-cash impairment in Kmart Group of approximately $430 to $480 million before tax, including an impairment of the Target brand name
• Non-cash impairment in the Industrial and Safety division of approximately $300 million before tax, primarily relating to the impairment of goodwill
• Pre-tax gain on sale of 10.1 per cent interest in Coles of $290 million, and one-off pre-tax gain of $221 million on the revaluation of the remaining Coles investment  
• The estimates of the significant items remain subject to auditor review

[...click on link above for further details...]

Disclosure:  I hold WES shares.

07-May-2020:  Macquarie Conference Briefing Presentation

That is a link to a copy of the presentation that is to be given today at the Macquarie Australia Conference today.  The presentation outlines Wesfarmers’ priorities and response to current market conditions.  It also includes an update on the Group’s trading performance in line with Wesfarmers’ announcement on 28 April 2020 and an update on the Group’s balance sheet position.  [28-Apr-2020:  COVID-19 update]

Wednesday 19th Feb 2020:  The following have all been released by WES (Wesfarmers) to the ASX announcements platform today:

2020 Half-year Results

2020 Half-Year Report (including Appendix 4D)

2020 Half-year Results Briefing Presentation

Wesfarmers sells 4.9 per cent of Coles Group for $1.05 billion

Disclosure:  I hold WES shares.  I like the exposure to Bunnings, Officeworks, Wesfarmers' natural gas and agricultural chemicals/fertilisers businesses, as well as their new foray into battery metals miners and their plans to develop a battery metals supply chain business.

A rare conglomerate with higher cash position.  Controls many brands and is diversified enough to weather any market. 

There’s been a dip recently in the SP of WES after a steady rise following divestment of Coles, which I feel presents an opportunity to buy for long term yield

once coles demerger is completed this will rebound (IMHO)