Wesfarmers Limited (WES)
SELL

WES - Stock Update

 3 Jun 2022
Sector: Consumer Discretionary

Sandstone Insights Company Flash

Strategy Day (Wesfarmers Update)

Wesfarmers (WES) hosted its Strategy Day on 2 June 2022. A broadly neutral update with the share price -0.63% change on the day.

Key issues debated:

  • Net Capex range reiterated at $900 million - $1 billion.
  • WesCF - Strong pricing and demand across fertilisers, chemicals, and energy.
  • Health – Near-term earnings are weaker due to integration costs and investment.
  • OneDigital – Focus on OnePass (Amazon Prime like subscription shipping) and ~$80m expected losses in FY22 (ex-Catch losses)

We remain concerned that WES operational momentum will continue to slow over coming months. This could potentially provide a headwind for the share price given WES valuation at 24x FY23E PER (a wide premium vs market at 15x)

We have already seen a softening of sales growth in Kmart and Target in the 6mths to February 2022. We suspect that Bunnings (~50% of Group Sales) will also move into a period of much slower sales growth in FY23E, and potentially negative growth given the high base effect.

In our view, investors would be better positioned to sell the COVID winners and buy the COVID losers. Qantas (QAN) and other service-based covid losers are now outperforming due to the focus shift from stay-at-home to return-to-travel. (Figure 1).

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

Figure 1: WES VS QAN relative performance since 31 Dec 2021

WES VS QAN relative performance since 31 Dec 2021

Source: Refinitiv, Sandstone Insight

View the latest Research Report

Disclaimers and Disclosures

Issuer

The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").

Reliance

Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.

General Advice

Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs. 

General Disclosures

This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au. 

Currency of Research

The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.

Access and Use

Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.

Equities Research Methodology

Please click here for information about MST equities research methodology.