MENU

Is Wesfarmers Ltd about to become Coles?

Industrial conglomerate Wesfarmers Ltd (ASX: WES) could be about to become a pure retail play as it spins off a number of divisions.

The company is reportedly looking to spin off its insurance broking division OAMPS, in a deal potentially worth more than $1 billion, and other divisions could be divested.

While Wesfarmers boss Richard Goyder has repeatedly defended the company’s business model, which includes several disparate businesses, including supermarket Coles, discount variety retailers K-Mart and Target, Officeworks, Bunnings, insurance, chemicals  & an energy division.

In October last year, Mr Goyder told an American Chamber of Commerce event that Wesfarmers needs to be come, ‘lean, dynamic and innovative’, to compete with global giants such as Amazon.

With the coal business, chemical, insurance and industrial safety divisions holding back the performance of the integrated Coles business, Wesfarmers may be about to transform itself into a pureplay retailer, much like main rival Woolworths (ASX: WOW).

Coles drove earnings 10.7% higher over the past six months, and continues to go from strength to strength, while Wesfarmers’ other businesses are struggling, or making minimal (compared to Coles) profits.

Wesfarmers’ may also just be looking to sell OAMPS to capitalise on the success of rival insurance brokers Austbrokers Holdings Limited (ASX: AUB) and Steadfast Group Ltd (ASX: SDF).

Steadfast’s share price is up over 16% since listing in August 2013, while Austbrokers has skyrocketed, rising 366% since listing in 2005.

Having bought OAMPS in 2006 for $700 million, Wesfarmers will make a decent profit on OAMPS, should it receive more than $1 billion, either in a trade sale, or as a standalone IPO.

Wesfarmers was recently names as one of the two best stocks in the region by Angus Tulloch, Edinburgh-based head of Asia Pacific equities for First State Stewart Super.

Mr Tulloch says improving consumer confidence will make a big difference to retailers on the front line, but will eventually flow through to most other sectors of the economy.

Foolish takeaway

A divestment of its other non-core businesses and a clearer focus on Coles and the retail side of its business could make Wesfarmers a stronger competitor to Woolworths. It could also realise value for shareholders and result in special dividends or a return of capital. One to watch.

Get this top investor's #1 ASX tech pick for 2014 - FREE!

The Australian Financial Review calls it "Australasia's hottest tech stock"... the shares have already rocketed up 700% since 2012! But this may just be the beginning, says one top stock picker. Discover whether you should hit the BUY button today. Simply click here for your FREE copy of "Joe Magyer's #1 ASX Tech Stock for 2014."

Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.