The Wesfarmers Ltd (ASX: WES) share price has taken a breather from its all-time record high of $56.40 in February.
The diversified conglomerate has held up relatively well compared to peers such as Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) which have slumped in light of normalising consumer behaviour.
At the market close today, the Wesfarmers share price was trading up 0.7% at $54.26.
Is the Wesfarmers share price in the buy zone?
Macquarie weighed in on the Wesfarmers share price after its conference presentation on 5 May.
The broker looked to be impressed by the opportunities at hand to grow the diversified business. These include the expansion in chemicals, lithium production and growing regional distribution centres for Bunnings.
The note also highlighted the company’s commitment to absorbing as much of the cost pressures as possible. This points to exploring opportunities with alternative suppliers to maintain competitiveness.
The Macquarie rating is outperform with a $56.60 target price.
Wesfarmers presentation highlights
Surging online sales
Wesfarmers has made a significant effort to drive its data and digital capabilities, which has seen its retail online sales surge to $2.0 billion in the first half of FY21, almost higher than the entirety of FY20 online sales.
The company intends to continue to enhance its digital capabilities and improve the customer shopping experience. In the context of its Bunnings business, this includes increased online access to product ranges, enhancements to its product finder app and continue to support click/drive & collect services.
WesCEF eyes lithium production
WesCEF is the chemical, energy and fertiliser arm of the company. It recently approved the final investment decision of its Mt Holland lithium project, in partnership with Chile’s leading lithium producer, SQM.
Wesfarmers estimated its expected share of total project capital expenditure to be approximately $950 million. The current indicative timeline for the project eyes construction to start in the second half of 2021 with production to begin in the second half of 2024.
In its definitive feasibility study, concentrator and refinery production capacity was increased from 45ktpa to 50ktpa of sustainably sourced battery-grade lithium hydroxide, with capacity for a second phase expansion.
To add some perspective, Vulcan Energy Resources Ltd (ASX: VUL) and its flagship Zero Carbon Lithium project is targeting 40ktpa lithium hydroxide production.
Accelerating the growth of Kmart
Wesfarmers has made Kmart the focal point of its department store business. This has seen 22 large format Target stores converted to Kmart stores, and 52 Target Country stores converted to the new K Hub format.
The company plans to continue to support Kmart’s growth by accelerating its network growth to address key market gaps. This will hopefully unlock further scale benefits and deliver an earnings uplift for the group.