How Wesfarmers will grow even bigger

About Latest Posts Catherine Baab-MuguiraCatherine Baab-Muguira is a Fool.com.au analyst/writer. A Fool since 2010, she comes at investing by way …

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

By any measure, Wesfarmers (ASX: WES) is a huge company. Its market cap is nearly $50 billion. It owns and operates the other half of the nation's supermarket duopoly: Coles. Its interests span nearly ever sector of the economy, from retail and resources to insurance and asset management.

By revenue, it's now Australia's second largest company, ranking behind mining giant BHP Billiton (ASX: BHP) and ahead of competitor Woolworths (ASX: WOW).

Investors, understanding that 'trees don't grow to the sky', might well ask how such a huge company could grow in the months and years to come.

Huge outperformance… can it continue?

Sure, Wesfarmers shares have risen 40% in the last twelve months, outperforming the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) by a wide margin, as the chart below shows. But most importantly, what's next for this giant?

Wesfarmers outperforms S&P:ASX 200 2013

Actively freeing up capital

Wesfarmers famously acquired supermarket chain Coles in 2007 for some $20 billion. Today, Coles contributes over half of the conglomerate's overall revenues and represents a significant growth engine for the company — with sales rising 5.3% in the most recent quarter over the corresponding period in 2012. (However, this acquisition is also credited with causing Wesfarmer's ROE to plummet.)

On Wednesday, Wesfarmers freed up about $400 million in capital by selling off 75% of its stake in 19 Coles-owned shopping centers in a joint venture with ISPT, an unlisted Australian property fund manager, and additional deals could be in the works.

You can bet, in any case, that Wesfarmers' management will be looking for a good return on this newly freed-up cash. With an overall cash horde in the $3 billion range, could another big acquisition be in the works?

"There has been speculation Wesfarmers may have an interest in Coates Hire", as The Australian reported yesterday.

Meanwhile Wesfarmers CFO Terry Bowen has said an airline acquisition is definitely off the table. Still it seems the company is keeping a relatively open mind, as it seeks to keep shareholders happy, about other possible acquisitions and ventures.

Foolish takeaway

It takes a lot to move the needle for a massive company like Wesfarmers, so an acquisition would need to be quite a large one. Coates Hire, as Australia's largest equipment hire company, is one intriguing idea.

Surely one source of reassurance for shareholders, in the meantime, is the company's fully franked dividend, currently in the 4% range.

In the market for high yielding ASX shares? Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »