FY21 result was slightly above expectations with underlying EBIT up 21% to $3.55bn.
WES has proposed a A$2.3bn (A$2.00 per share) capital return that is expected to be paid in December (subject to shareholder approval).
WES advised that its retail divisions have been affected by recent lockdowns with trading restrictions and several store closures. Any correction in the share price below $60 will offer a buying opportunity.
Wesfarmers remains under Algo Engine sell conditions and we’ll review with interest, the upcoming earnings result on the 27th of August.
We expect earnings to be flat on the same time last year, once adjusted for the demerger of Coles. Bunnings and Officeworks will provide high single-digit growth and the department store sales are likely to remain weak.
In a soft market, we may see a discounted entry-level into Wesfarmers, near the $35 price range. Remain patient!
Wesfarmers is currently under Algo Engine sell conditions and the recent sell-off from $38.80 may soon see a new buying opportunity emerge.
The market is in the process of repricing Wesfarmers, following tougher trading conditions, which were highlighted during the strategy day presentation.
The earnings update included downward guidance to the department store division and general headwinds across a number of the Wesfarmers businesses. Investors also need to consider the supply chain investment and system upgrades, as capex spending is set to increase.
We anticipate an overreaction to the sell side and therefore, a buy opportunity may soon approach. Keep Wesfarmers on your radar and watch for the next Algo Engine buy signal.
Wesfarmers trades at 21x earnings and on a 4% yield. EPS growth should remain around 4 -5% and we see support for the share price at $34.00
Lynas Corporation, Ltd. is an Australian rare-earths mining company, listed on the Australian Securities Exchange as a S&P/ASX 200 company. It has two major operations: a mining and concentration plant at Mount Weld, Western Australia and a refining facility at Kuantan, Malaysia.
Wesfarmers at $33 provides a low risk entry level, short term growth is limited, we therefore suggest selling a covered call to enhance the income return.
Call our office on 1300 614 002 for more detail on the derivative strategy.