The Wesfarmers Ltd (ASX: WES) share price could rocket higher following today's announcement of its half year results.
Here are the key takeaways from Wesfarmers' half year result:
- Revenue rose 4.3% to $34.9 billion
- Profit rose 13.2% to $1.6 billion
- A half year fully franked dividend of $1.03 was declared, up 13.2%
- Officeworks is in the pipeline to be divested
- Bunnings Warehouse continues to power ahead
Wesfarmers is the owner of Coles, Kmart and Target (Department Stores), Bunnings Australia and New Zealand (BANZ), an industrials and resources business, and most recently, Bunnings U.K. and Ireland (BUKI).
Outgoing CEO Richard Goyder noted the strong half year results reflected the success of its conglomerate structure, enabling its numerous businesses to withstand individual setbacks of other lines.
"Total retail earnings were in line with the prior corresponding period, with very strong results reported for Bunnings Australia and New Zealand (BANZ), Kmart and Officeworks," Mr Goyder said. "The continued momentum in these businesses was particularly pleasing and reflects the strong market positions they have each established."
He made particular note of the weakness in Coles' results during the half. "Coles' sales performance during the half built on the strong growth achieved in the prior corresponding period. Significant investment in value, particularly in the second quarter, led to lower earnings despite a reduction in costs."
Pleasingly, the group's financials looked good with free cash flow — the single-most important measure of financial success — rising $566 million to $2.2 billion. "In light of the overall improved Group earnings and cash flows, the directors today declared an increase of 13.2 per cent in the interim dividend to $1.03 per share," Goyder noted.
Looking ahead, the company said it is seeking to divest Officeworks, having bought the retailer back in 2007 and turned it around. Interestingly, the company said that given its strong performance it believes selling the business on a public market, such as the ASX, could unlock value for shareholders. A potential sale is, however, subject to Wesfarmers receiving a good price.
Looking ahead, Wesfarmers is pleased with its BANZ, Kmart and Officeworks businesses and is tracking ahead with its transformation of the BUKI businesses.
Buy, hold or sell
Wesfarmers continues to go from strength to strength despite heavy competition.
Its decision to divest Officeworks appears timely but comes with a word of caution, as personally I see Amazon Inc.'s arrival to Australia as a significant threat to that business. Therefore, if Wesfarmers can get away with a decent sale, it would be a wise move for them in my opinion. But retail investors should be wary.
Moreover despite its ongoing success, Wesfarmers shares are a little too expensive for my liking. While you could do far worse than buy Wesfarmers shares today, I'd rather wait for a standout dividend stock that is really cheap.
