Is the Wesfarmers Ltd (ASX: WES) share price a buy?
The retail giant recently declared a $1 ordinary dividend per share and a $1 special dividend per share, although the company has already gone ex-dividend so if you wanted to receive the cash you have already missed out.
However, the recent FY19 half-year result shows continuing operations net profit after tax (NPAT) growth of 10.4% to $10.8 billion.
Looking at the key segment of Wesfarmers, being Bunnings Australia and New Zealand, revenue grew by 5.2% to $6.9 billion and its earnings before interest and tax (EBIT) grew by 7.9% to $932 million. This goes to show that Bunnings continues to benefit from growing scale. However, Managing Director Rob Scott said that there was a moderation of trading conditions.
But, the previous growth machine of Kmart (with Target) is stalling – revenue only grew by 0.8% to $4.64 billion and EBIT dropped 3.8% to $383 million with weaker sales in apparel, lower growth in non-seasonal products and increased store & supply chain expenses.
Impressively, Officeworks' revenue increased 8.2% to $1.1 billion and EBIT grew 11.8% to $76 million.
Although the Kmart Group is slowing, I think it shows the benefits of having several different businesses than can each drive growth at different times.
Is Wesfarmers a buy?
On the one hand I am wary of investing in Wesfarmers shares because of the growing Amazon presence, which has devastated quite a few retail businesses in the US. Of course, Wesfarmers can grow its own online sales, so it's not all bad and perhaps the negativity is overdone.
But, I have long been impressed with Wesfarmers' focus on shareholder returns. By ultimately focusing on shareholder returns it's more likely that Wesfarmers will deliver on that objective.
It's hard to say what the sustainable dividend payment level will be, but I imagine Wesfarmers will want to maintain a good level of dividends over the long-term. If Wesfarmers expands into non-retail sectors then it could become more of a buy to me, it's currently trading at around 15x FY19's estimated earnings.
