We all link Wesfarmers to their ownership of Bunnings, which now makes up ~60% of their earnings (after they spun out Coles in 2018). While Bunnings continues to deliver for WES, their broader business is at an interesting juncture. WES is about to become a significant Lithium producer via its 50% ownership of the Mt Holland mine around 500 km east of Perth, which is expected to come online in the second half of 2024, with earnings flowing into FY25. While lithium prices have been hit hard, and it is difficult to predict what this division of the broader conglomerate will deliver, we know it will be meaningful in the coming years, something in the range of ~$1bn of EBIT.
While WES is not cheap, trading on an Est PE for 2024 of 24.21x, we don’t believe the market is factoring in much upside from their push into Lithium, which we think will drive better earnings growth over FY25 & 26 than the market is currently positioned for.
- Expected to yield 3.63% this year and 4% next (100% franked), WES balances yield with growth, but it’s not cheap at current levels.
We like WES over the medium term but are more neutral in the short term after a solid run
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