The Motley Fool

Why Wesfarmers Ltd has a bright future

What:  A report in The Australian Financial Review (AFR) that Wesfarmers Ltd (ASX: WES), the owner of the Coles retail business, has fielded an approach from private equity firms offering to buy the Vintage Cellars liquor retailing business will be music to shareholders’ ears.

So what: While there has been no official response as yet by the conglomerate to the AFR report, speculation that a price tag of $300 million for what is just one retail brand within the wider Coles liquor business creates interesting options for the company.

Recent asset divestments including the $1.8 billion sale of Wesfarmers’ underwriting business to Insurance Australia Group Limited (ASX: IAG) has left the firm flush with cash. Wesfarmers certainly already has plenty of cash and balance sheet flexibility so further asset sales are unnecessary, however with two other liquor brands – Liquorland and First Choice – it could be an opportunity to rationalise and streamline its business and also receive a full price for the Vintage Cellars brand.

Now what: It’s believed that Coles’ management is currently assessing how to go about improving its liquor business which is underperforming compared with the grocery division. It is also in need of rejuvenation to better compete against rival Woolworths Limited’s (ASX: WOW) liquor offering.

Ultimately it will probably come down to price. Wesfarmers has no need to sell the brand but it also has plenty of potential to maximise its returns and its market share of liquor without it. You would almost have to wonder why anyone would want to buy Vintage Cellars and go head-to-head against the retailing giants Coles and Woolies!

A grossed-up yield of 7%... plus double-digit profit growth!

Thanks to the wide and varied options available to Wesfarmers, the best days for the company may still be ahead of it. It's a similar case for The Motley Fool's top dividend stock for 2014. This stock offers growing sales, accelerating profits and a grossed up dividend yield of 7%! Find out the name and code right now -- your copy of "The Motley Fool's Top Dividend Stock for 2014" is FREE. Simply click here!

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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