Watchlist Wednesday: Wesfarmers Ltd (ASX:WES)

In the first edition of Watchlist Wednesday for 2022, we’ll be looking at one of ASX’s best-known but most misunderstood companies, Wesfarmers Ltd (ASX: WES).

WES stock price

Source: Rask Media WES 10-Year Stock Price

Wesfarmers – more than grain

Looks like Westfarmers has been around for years.

Originally registered as Westralian Farmers Cooperative Limit in 1914 the company was a vehicle for farmers in Western Australia to demand better wages and working conditions.

But over time, she moved away from her ancestral agricultural roots and turned to new business ventures.

He established the country’s first public radio station (now ABC Perth).

Distributed new products such as wool and cattle.

Wesfarmers has even ventured into underwriting insurance.

Over time, it acquired several companies such as Bunnings in 1987 and divested interests, including Coles in 2017.

Wesfarmers today reflects a conglomerate, with six key divisions:

Source: WES Annual Report for FY21
Source: WES Annual Report for FY21

The Bunnings (61%) and Kmart Group (19%) divisions account for the lion’s share of profits.

The founding rural enterprise, later called Landmark, has been sold in 2003 and no longer contributes to the company today.

Back to fashion

The conglomerate structure has fallen out of favor lately.

Markets struggle to value a company, let alone 50 inside a single one.

Thereafter, conglomerates generally trade at a discount to if each company were listed separately (see News Society, Johnson & Johnson Where GE).

However, Wesfarmers has shown the resilience of a conglomerate structure.

Multiple divisions mean it can overcome hurdles throughout the cycle that a stand-alone business cannot.

For example, the recent struggles of Kmart and Target have been shielded somewhat by Bunnings’ resilience.

This reduced the volatility of Wesfarmers’ earnings and subsequent dividends. He hasn’t missed a payment since signing up in 2006.

Let’s make money

These days, mission statements include buzzwords like empower, positive impact, better world… etc., etc.

Conversely, Westfarmers cuts to the chase. We are here to outperform the market.

Wesfarmers main objective is to provide a satisfactory return to shareholders…we measure our performance by comparing the TSR (total shareholder return) of Wesfarmers to that achieved by the Australian market as a whole.

Wesfarmers is the kind of business you buy, put in the bottom drawer and throw away the key.

And on that measure, he excelled.

Over periods of five, ten and fifteen years, Westfarmers has beaten the S&P/ASX 200 (ASX: XJO).

The investment file

With a fully franked dividend 3.4% yield, Westfarmers isn’t going to set your world on fire.

But it won’t blow your wallet either. He is reliable and defensive.

Remember that Wesfarmers’ main objective is a satisfactory return for you, the shareholder.

For this reason, Wesfarmers is the kind of business I have on my watch list for 2022 and beyond.

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