Industrials Division Lifts Wesfarmers Ltd’s (ASX:WES) Profits In FY’17
Operating on multiple retail fronts, Wesfarmers Ltd (ASX:WES) saw improved performance across divisions, with the industrial business driving most gains over the previous fiscal. Excluding one-offs, revenue came in 3.7% higher, while EPS jumped 21.6% — WES remains focused on cash generation and capital efficiency. The company said its diversified structure has the strength as resources boosted industrials and its retail brands Bunnings, Kmart and Officeworks saw continued growth momentum. The full-year dividend for shareholders is going to be 19.9% higher at $1.20. Shares of the company ended 1.6% down Thursday post results. What can cause concern for a shareholder is the growth of its largest revenue generator, Coles, which saw operating profit drop 13.5% to $1.6 billion and the company said the environment remains competitive going forward. However, financial health isn’t much of a concern for Wesfarmers — free cash flows jumped $2.9 billion to $4.2 billion. But the increase would reduce to the tune of one billion if $665 million for Homebase acquisition in 2016 and $947 million inflow this year from the sale of Coles’ credit card business are accounted for. The company generated $861 million in cash from operations in FY’17. Wesfarmers offers a lucrative dividend yield of more than 5% and the retailer appears fairly priced based on the sell-side analysts’ estimates. For a value investor seeking a deep margin of safety, WES doesn’t seem to make the cut. However, it’s the leading retailer in Australia with a number growing businesses. If the company is able to deliver on its consumer-led strategy for Coles, It won’t be surprising that it commands a premium after that.