The Wesfarmers Ltd (ASX: WES) share price saw a decent increase after the company announced its FY23 report on Friday. The company's shares rose 3% on the day in response to a number of positives.
Wesfarmers may not be the most well-known name to Aussies, but it certainly owns a number of well-known businesses including Bunnings, Kmart, Officeworks, and Priceline.
ASX reporting season gives us the chance to get a good look at how a business is performing, as well as learn about its outlook. Let's have a quick look at some of the highlights that I thought were important.
Earnings recap
Considering the economic environment, the headline growth numbers were solid. Revenue, excluding the healthcare division, rose 7.4% to $38 billion, total earnings before interest and tax (EBIT) went up 6.3% to $3.86 billion, net profit after tax (NPAT) increased 4.8% to $2.47 billion, earnings per share (EPS) climbed 4.8% to $2.18, and the full-year dividend rose 6.1% to $1.91 per share.
For me, the most impressive factor was that the three biggest profit generators still achieved earnings growth in the second half of FY23 despite the challenges they faced. Bunnings' earnings grew 0.7% to $952 million, Kmart Group earnings rose 3.9% to $394 million, and WesCEF (chemicals, energy and fertilisers) earnings went up 7.1% to $345 million.
Profit growth won't necessarily happen with every single result, and management is expecting the existing WesCEF operations will see lower profit in FY24 due to lower ammonia prices and higher costs. However, the start of operations at the company's 50%-owned Mt Holland lithium project may be helpful in the second half of FY24 to mitigate that decline.
In the first seven weeks, Kmart continued to deliver good revenue growth, Bunnings achieved a slight increase in revenue, and Officeworks sales were flat compared to last year.
Does this result make the Wesfarmers share price a buy?
I don't believe that one result alone can make a business a buy, but I'd say that this report is the latest one in a list of many where Wesfarmers has delivered solid performance for investors.
For Bunnings and Kmart to still be delivering growth at the start of FY24 shows their resilience compared to many other ASX retailers that have spoken about sales declines at the start of FY24, such as JB Hi-Fi Limited (ASX: JBH).
Wesfarmers can't control what ammonia prices are doing, but it's exciting that lithium earnings are going to start in less than a year.
Healthcare is a great industry for the company to be focused on to deliver long term, with tailwinds like digitalisation and ageing demographics.
A tailwind that can boost the wider business is Australia's population growth. More people in the country means more potential customers for names like Bunnings, Kmart, and Officeworks.
The valuation really doesn't seem demanding at all for such a quality business. Using the EPS from FY23, it has a price/earnings (P/E) ratio of 23. The grossed-up dividend yield for FY23 is 5.3%. It'd be even better if we could buy at a cheaper price, but the current valuation is attractive to me for the long term.
