Has Wesfarmers Limited continued its focus on sustainable value creation over the long term?

Team Veye | 25 Mar 2020 ASX - WES
Has Wesfarmers Limited continued its focus on sustainable value creation over the long term?

Wesfarmers Limited (ASX: WES)

Wesfarmers trading update and response to COVID-19

Wesfarmers Limited (ASX: WES) on 20 March 2020 provided an update on the impact of the COVID-19 virus on its businesses, along with the measures it is taking to actively manage risks to team members, customers, and its businesses and to continue to provide critical products to the community, essential services and businesses.

(Chart source: TradingView)

Business performance and supply chain

Since the start of the calendar year, overall momentum in the Group’s retail sales has continued in line with the first half of the financial year. Strong sales growth has continued in Bunnings, Kmart, and Officeworks, supported by strong growth in online sales. In recent weeks, Bunnings and Officeworks, in particular, have played an important role in providing retail and commercial customers with critical products as they respond to and prepare for COVID-19. This has seen significant demand for essential cleaning and hygiene products, home office equipment and technology, and education supplies. The diversity and essential nature of many products and services provided by Bunnings, Officeworks and Kmart remain important to customers in a range of economic scenarios.

Performance to date in the Group’s industrial businesses has also generally continued in line with management expectations, other than a further decline in the Saudi CP price which has impacted realised prices in the energy segment of Wesfarmers Chemicals, Energy and Fertilisers. The Industrial and Safety businesses are experiencing strong demand for critical products including essential protective clothing, cleaning and hygiene products, and medical gases, offset by some weakness due to disruption to customers’ normal operations.

(Graphic Source – Company Reports)

Since January 2020, the Group’s businesses have been working closely with suppliers and logistics providers to support supply chain operations. Across the Group, more than 90 percent of supplier factories are now operational and returning to full capacity. International freight operations are also now generally performing as usual. While there is low availability in certain product categories, due to very high demand, the Group does not currently expect supply chain constraints to have a material impact on retail trading performance. (Data Source – Company Reports)

 

Veye’s Take

Overall momentum in the Group’s retail sales has continued in line with the first half of the financial year. Strong sales growth has continued in Bunnings, Kmart, and Officeworks, supported by strong growth in online sales. Bunnings and Officeworks have played an important role in providing retail and commercial customers with critical products as they respond to and prepare for COVID-19. This has seen significant demand for essential cleaning and hygiene products, home office equipment and technology, and education supplies. Wesfarmers Limited’s balance sheet remains very strong and was further strengthened by the sale last month of 4.9 percent of the Group’s interest in Coles for approximately $1,050 million, providing significant flexibility and support to the Group’s operating businesses. The stock had been having a strong retracement which is losing momentum now. If the stock is able to hold its strong support at $29 then it can have the potential of moving much higher. Veye maintains a “Hold” recommendation on “Wesfarmers Ltd” at the current price of $31.68

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