Why I think the Wesfarmers share price is a buy after this week’s AGM

The Wesfarmers Ltd (ASX: WES) share price has gone through a lot of pain in 2022, but I think it’s now in bargain territory. I think that’s even more the case after seeing the update and comments from the annual general meeting (AGM) this week.

While it didn’t give much in terms of numbers, I think the ASX share’s comments were promising. I also like the company’s long-term plans.

Overall, I believe that Wesfarmers has a promising future, which is why I think it’s worth owning.

Promising AGM update

Earlier this week, Wesfarmers told investors how FY23 had been going so far.

It said that retail trading conditions have “remained robust” and management has been “pleased” with sales in FY23 to date.

Rob Scott, managing director of Wesfarmers, said:

Australian consumer demand continues to be supported by low unemployment and high levels of accumulated household savings, but rising interest rates and the impact of inflation are starting to affect consumer behaviour.

Over recent months, shopping patterns and customer feedback indicate some customers are becoming more price sensitive, as they try to manage household budgets. We see these conditions as an opportunity for our businesses, which are well known for their everyday low prices, to outperform relative to others in their markets.

Bunnings, the key profit generator for Wesfarmers, has seen sales impacted by prolonged wet weather. But overall sales growth for the financial year so far “remains resilient and continues to be supported by strong demand from commercial customers”. Sales growth from DIY customers remains positive, but it has moderated from high levels experienced through COVID.

Combined sales growth for Kmart and Target “continue to be pleasing, with strong trading results even when adjusted for the impact of lockdowns in prior periods.”

Kmart’s low product prices could be attractive to shoppers during this period when households are looking for value.

Officeworks sales are “in line” with the prior year, while Catch’s online sales are lower with lockdowns finished.

The chemicals energy and fertiliser division has continued to benefit from “strong customer demand and elevated commodity prices”. The Mt Holland lithium project is “progressing well”.

Results from the new health division have been “pleasing”, with “strong” growth in wholesale and improvements in performance for both Priceline and Clear Skincare.

Scott also said that the balance sheet is “strong” and that it has the capacity to effectively manage a range of economic scenarios.

Why I’m positive about the Wesfarmers share price

For starters, for the first half of FY23 at least, the comparable period in FY22 is for locked down periods. It provides an easier year-over-year growth rate for the group’s retailers, particularly Kmart and Target. This will also help the overall picture for FY23.

Second, the strong lithium price could be very helpful for Mt Holland’s future earnings. Wesfarmers pointed out that the production from the lithium hydroxide project will be equivalent to powering 1 million battery electric vehicles. In two years it will be selling lithium hydroxide, which will be refined in Kwinana in Western Australia.

I’m also impressed by the recent acquisitions. The health division has attractive long-term tailwinds thanks to Australia’s demographics. Bunnings’ acquisition of Tool Kit Depot and Beaumont Tiles gives Bunnings more scope for growth.

I appreciated Scott’s comments about making acquisitions, but still focusing on returns for shareholders:

I should stress that our investments in these new areas are all about delivering returns to shareholders. We do not seek growth for the sake of growth. Rather, we focus on building businesses where we have unique assets and capabilities, that will deliver attractive returns to our shareholders.

In my opinion, the lower level of the Wesfarmers share price and growth venues makes it one of the most attractive ASX blue-chip shares to consider.

The post Why I think the Wesfarmers share price is a buy after this week’s AGM appeared first on The Motley Fool Australia.

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• Looking to buy Wesfarmers shares? Here’s what to watch at this week’s AGM
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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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