Wesfarmers share price: what’s the outlook following FY20 results?

Wesfarmers share price in focus

Investors look to have responded with mixed feelings to Wesfarmers (WES) full-year (FY20) results, with the stock trading marginally lower by the afternoon session.

Overall, the conglomerate reported strong revenue and earnings growth in 2020, while also declaring a final dividend of 77 cents per share.

Despite that, as noted above, the reaction from investors was a mixed one: Indeed, while WES opened higher, it was soon bid lower, trading around $48.65, down 0.47% by the late afternoon session – amid broad market weakness which also saw the ASX 200 benchmark trend sharply lower.

Results in focus

Despite short term share price volatility, Wesfarmers looks to have benefitted strongly from the changing consumer preferences as a result of the coronavirus pandemic – with the conglomerate reporting strong sales growth across its Bunnings, Kmart and Officeworks franchises.

More broadly, on a year-over year and pre AASB 16 basis, and when excluding significant items, Wesfarmers reported:

• Revenues of $30,846 million, up 10.5%
• Profits (NPAT) of $2,099 million, up 8.2%,
• Basic earnings per share (EPS) of 185.6 cents
• A full-year dividend of $1.52 per share, down 14.6%

On a more granular level, the company's retail arms recorded particularly strong results: Bunnings saw its revenue climb 13.9%, to $14,999 million; Kmart grew its revenues by 7.2%, to $9,217 million; while Officeworks proved to be the best performing segment from a top-line perspective, with revenue hitting $2,787 million, on an implied growth rate of 20.4%, while earnings (EBIT) rose 13.8% to $190 million.

Importantly however and maybe the most emblematic of the coronavirus-induced shift in consumer behaviour was the robust online sales growth Wesfarmers recorded in FY20. Here, the company reported online sales of $2.1 billion; or $1.5 billion (+60%), when excluding sales from Catch.com. The company noted that this sales momentum continued in July and August across all of the company’s retail arms.

Finally, Wesfarmers also declared a final dividend of 77 cents per share and a special dividend of 18 cents per share, derived from the company’s recent selldown of its stake in Coles Group (COL).

All up, Wesfarmers full-year dividends are set to come in at 152 cents per share.

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The outlook: key considerations in focus

Commenting on the FY21 outlook, the company noted that:

'July sales were strong, supported by the progressive reopening of economy, customers spending more time at home and government stimulus'

However, it was also flagged that the expectation was for sales to be impacted in the near-term as a result of lockdowns in Victoria and New Zealand.

'Sales are expected to be impacted but the gradual removal of government stimulus measures and some customer purchases in FY20 being brought forward from FY21,’ the company said.

Elsewhere and looking at the implications of these results, analysts from Citibank pointed out that:

‘We expect modest upgrades to consensus earnings given the better than expected 2H20 result across most divisions. Much of this earnings upside risk is already factored into earnings multiple however.’