One of the best performers on the ASX 200 on Thursday has been the Wesfarmers Ltd (ASX: WES) share price.
In morning trade the conglomerate’s shares are up a sizeable 6% to $34.77 following the release of its half year results and the announcement of a special dividend.
What happened in the first half?
Due to the demerger of the Coles Group Ltd (ASX: COL) business and the disposal of the Bengalla, Kmart Tyre and Auto Service (KTAS), and Quadrant Energy businesses, Wesfarmers’ first half accounts were reasonably messy.
Revenue including discontinued operations fell 13.2% to $31.152 million and EBITDA tumbled 7.7% to $2,770 million.
However, its results from continuing operations were significantly better. Revenue came in 4.2% higher at $14,388 million and EBITDA excluding significant items was 8.6% higher at $1,911 million.
Net profit after tax from continuing operations and excluding significant items was $1,080 million, up 10.4% on the prior corresponding period. On a per share basis this came to 95.5 cents.
The Wesfarmers board declared a 100 cents per share interim dividend and a further 100 cents per share special dividend. Both dividends will be fully franked.
The board decided to reward shareholders with the latter after completing a number of actions taken to reposition its portfolio over the 12 months. According to the release, “this capital management activity distributes to shareholders the profits realised on asset disposals and takes into account Wesfarmers’ available franking credits, strong balance sheet, robust credit metrics and cash flow generation while preserving balance sheet capacity to take advantage of value-accretive growth opportunities, if and when they arise.”
How did its remaining businesses perform?
The Bunnings Australia and New Zealand (BANZ) business posted a 5.2% increase in revenue to $6,909 million and a 7.9% increase in earnings to $932 million.
Management advised that its earnings growth “was achieved despite a moderation of trading conditions and high levels of growth in the prior corresponding period and was assisted by an ongoing focus on cost control and continued favourable commercial property market conditions.”
The Kmart Group business, which comprises both Kmart and Target, grew revenue by 0.8% but saw earnings decline 3.8% to $383 million.
The Officeworks business performed well and grew revenue by 8.2% to $1,100 million and earnings by a solid 11.8% to $76 million. The ‘every channel’ strategy has been working well, driving strong sales growth across stores and online.
Finally, the continuing operations of its Industrials business posted a small decline in half year earnings to $227 million.
Management believes the company is well-positioned for growth over the long term, especially given the strength of its balance sheet following repositioning of its portfolio.
It intends to use this balance sheet strength to take advantage of value-accretive growth opportunities, if and when they arise, in order to create value for shareholders over the long term.
No formal guidance was provided for the full year.
Should you invest?
I think Wesfarmers would be a great option for investors at the current price. This is especially the case for income investors with its shares currently offering a trailing fully franked 6.4% dividend yield. This yield increases to approximately 9.3% when you include the special dividend.
Overall, I think it would be a great option along with Coles and ahead of rival Woolworths Group Ltd (ASX: WOW).
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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