Could these ‘little’ businesses be a secret weapon for Wesfarmers shares?

When investors think of Wesfarmers Ltd (ASX: WES) shares, they may think of businesses like Bunnings, Kmart, and Officeworks.

But, there are plenty of other businesses within the company including Target, Catch, Priceline, and a number of other businesses.

And investors shouldn’t discount those other business segments because they’re actually already making significant profits for the S&P/ASX 200 Index (ASX: XJO) share.

Strong growth in FY22 from unsung businesses

The 2022 financial year was such a strong showing that one of the non-retail segments generated more profit than Kmart Group.

In FY22, Bunnings generated $2.2 billion of earnings before tax (EBT) and $945 million in the second half of FY22.

Kmart and Target saw $505 million of EBT (down 31.7%) in FY22 and $283 million (up 19.4%) in the second half.

Officeworks reported FY22 EBT of $181 million (down 14.6%) and $99 million in the second half (down 11.6%).

Now let’s look at some of the unsung businesses.

Wesfarmers chemicals, energy, and fertilisers (WesCEF) saw “record earnings”, with a strong operational performance and higher global commodity prices. Full-year EBT jumped 40.6% to $540 million while second-half EBT climbed 43.8% to $322 million. As this shows, it was the second biggest profit generator for Wesfarmers, only behind Bunnings. The segment is certainly growing in importance for Wesfarmers shares.

Meanwhile, the industrial and safety division saw a “continued improvement in performance and profitability”. There was sales growth and additional operating efficiencies, as well as increased demand from Coregas healthcare and industrial customers. FY22 EBT grew 31.4% to $92 million while second-half earnings soared 54.5% to $51 million.

Is there more growth to come?

It has been a strong period for WesCEF, benefiting from a favourable ammonia price and continued strong demand from mining customers. Wesfarmers is currently working on its lithium project called Mt Holland, with WesCEF playing an important part in the development. Managing director Rob Scott said:

We see WesCEF as an important driver of long term growth and the team continued to progress capacity expansion opportunities this year. Good progress also continued on the development of the Mount Holland lithium project, with the village and aerodrome completed and pre-strip mining and the construction of the concentrator and refinery advancing. The WesCEF lithium team is progressing discussions with key customers which continue to be supported by very strong market fundamentals.

When Wesfarmers announced its FY22 result, the company also said that the chemicals business is expected to continue benefiting from strong global commodity prices, with strong demand from the WA mining sector expected to continue. It will continue to progress engineering studies evaluating production capacity expansions.

In the fertilisers business, good 2022 seasonal conditions are reflected in “positive grower sentiment”, though high fertiliser input prices may “moderate application rates in 2023”.

Regarding its lithium exposure, Wesfarmers said that construction activity continues, while lithium market fundamentals remain favourable, underpinned by the growing demand for battery electric vehicles. Meanwhile, negotiations to supply lithium hydroxide to key counterparties are underway.

The outlook for the industrial and safety businesses are focused on “driving improvements in performance and profitability, strengthening the customer value proposition and executing new growth opportunities”, the company says.

It seems like Wesfarmers is building a strong earnings base away from retail, which is useful as Australia goes through an uncertain environment for retailers.

Wesfarmers share price snapshot

Over the last six months, Wesfarmers shares are down around 5%.

The post Could these ‘little’ businesses be a secret weapon for Wesfarmers shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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