It may be Wesfarmers Ltd's (ASX: WES) investor day where it outlines its growth strategy to the investment community, but the spotlight is more focused on the conglomerate's arch-rival Woolworths Limited (ASX: WOW).
The 200-plus slide presentation that covers all of Wesfarmers' businesses – from Coles supermarket and home improvement chain Bunnings to its coal operations and department stores Kmart and Target – was fairly uneventful.
But that's a good outcome given that things are humming along pretty nicely for Wesfarmers as its stock price outpaces Woolworths by around the biggest margin in at least five years.
As the saying goes: if it ain't broke, don't fix it.
I had thought some reversion of the mean would be at hand last month, but it is clear that Wesfarmers is better placed to build on gains, while Woolworths scratches around for a turnaround strategy to win the supermarket war against Coles and German-chain Aldi.
It's not that Woolworths can't succeed in playing catchup at some point but there's no quick or easy fix, and shareholders should be prepared to weather more short-term pain.
It is easy to see why analysts want to see Wesfarmers continue to invest in Coles and its outperforming Bunnings business even though management would prefer to make counter-cyclical investments.
By that it means its coal mining operations, and Wesfarmers is essentially saying it is keen to look at potential merger and acquisition (M&A) opportunities in the embattled sector as it thinks the longer-term fundamentals for the commodity are sound.
Wesfarmers reassured investors that it would only invest in where it made sense from an earnings per share (EPS) growth perspective.
I back the counter-cyclical strategy but Wesfarmers knows there's a limit to investors' goodwill. Even though it is delivering the goods, management understands it needs to be looking for savings and has outlined plans to cut capital expenditure by between $200 million and $400 million this financial year.
Sure, Wesfarmers isn't cheap as it trades on a 2014-15 forecast price-earnings (P/E) multiple of 20x, compared with the 14x multiple Woolworths is trading on, but I would rather buy an expensive business that works than a cheap one with a hole in it.
On the bright side for Woolworths, its underperformance could make it a takeover target for a large offshore peer looking for an entry into the Australian market, according to the Australian Financial Review.
Remember department store David Jones? In this era of cheap debt, it seems anything that's underperforming is up for sale regardless of size.
