Shares of diversified supermarket giant, Wesfarmers Ltd (ASX: WES), have risen 1.56% today following its decision to push further into financial services.
Wesfarmers is the owner of leading Australian retail brands such as Coles supermarkets, Kmart, Target, Officeworks, Bunnings Warehouse and much more. In an ASX announcement this morning Wesfarmers said it has exercised its right to buy the remaining 50% of shares in Wesfarmers Finance Pty Ltd from GE Capital Finance JV.
Wesfarmers Finance Pty Ltd is the holding company for the Coles Credit Card Joint Venture. GE has issued credit cards under the Coles brand for more than 20 years.
Wesfarmers' Managing Director, Richard Goyder, said the relationship with GE has been a good one but today's investment announcement will give Wesfarmers complete control over the business.
The joint venture commenced in April 2015 (when GE said it would sell its Australian consumer lending businesses) to hold assets and operations of the Coles credit card portfolio, which comprised gross receivables of $850 million as at March 2015.
"This [acquisition] will build on Coles' growth in financial services, which now services over 800,000 customers covering car, home and life insurance, credit cards and mobile wallet," Wesfarmers' Financial Services Managing Director, Rob Scott, said.
Whilst the total cost for the additional 50% of shares was not explicitly stated, Wesfarmers said it was not expected to materially impact Coles' profits over the next year after allowing for transaction and acquisition costs.
Should you buy the stock today?
Last week Wesfarmers continued its successful run of profit growth when it released its third quarter report showing strong performances from Coles, Bunnings, Officeworks and Kmart. Whilst the coal and Target businesses continue to struggle, Wesfarmers is arguably one of the best conglomerates on the ASX.
Its strategic push into financial services appears to be worthwhile. However, with Wesfarmers shares currently changing hands at over 20x forecast profits per share, it doesn't come cheap. Whilst it has recently been performing better than key rival Woolworths Limited (ASX: WOW) it does trade at a significant premium to its peers and the broader market.
Personally, I think Woolworths shares are currently closer to their fair value than Wesfarmers. Therefore I'm holding off buying Wesfarmers shares at today's prices.
