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The Wesfarmers Ltd (ASX: WES) share price has seen a lot of pain in 2022, but I think it is now in favorable territory. I think this is even more relevant after seeing the update and comments from annual general meeting (AGM) this week.
While it didn’t add up to much in terms of numbers, I think the comments from ASX stocks were promising. I also like the company’s long-term plans.
Overall, I think Wesfarmers has a bright future, so I think it’s worth owning.
Prospective AGM Update
Earlier this week, Wesfarmers told investors how the financial year 23 has been going so far.
It said retail conditions “remain robust” and management was “pleased” with FY23 sales to date.
Rob Scott, managing director of Wesfarmers, said:
Consumer demand in Australia continues to be supported by low unemployment and high levels of household savings, but rising interest rates and the impact inflation are beginning to influence consumer behavior.
In recent months, shopping patterns and customer feedback show that 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 others in their markets.
Bunnings, the main profit generator for Wesfarmers, saw sales affected by the prolonged wet weather. But overall sales growth for the financial year so far “remains robust and continues to be supported by strong demand from commercial customers.” Sales growth from do-it-yourself customers remains positive, but is down from highs CORONAVIRUS INFECTION COVID.
Combined sales growth for Kmart and Target “continues to be pleasing, with strong trading results even after adjusting for the impact of lockouts in prior periods.”
Low prices on Kmart products may be attractive to shoppers during this period when households are looking for value.
Officeworks sales are “in line” with the prior year, while Catch online sales are lower due to the end of the lockdown.
The chemical energy and fertilizer division continues to benefit from “strong buyer demand and higher commodity prices.” Mt Holland lithium project ‘progressing well’.
Results from the new healthcare division were “enjoyable”, with “strong” growth in wholesale sales and improved performance at both Priceline and Clear Skincare.
Scott also said that balance is “strong” and that it is able to effectively manage a range of economic scenarios.
Why I am positive on Wesfarmers share price
To begin with, at least for the first half of FY23, the comparable period in FY22 is for lock-in periods. This provides a lighter year-over-year growth rate for the group’s retailers, particularly Kmart and Target. It will also help in building the big picture for FY23.
Second, a strong lithium price could be very beneficial for Mt Holland’s future earnings. Wesfarmers said the output from the lithium hydroxide project would be equivalent to powering 1 million battery electric vehicles. In two years, it will be selling lithium hydroxide, which will be processed at Kwinan in Western Australia.
I am also impressed with the latest acquisitions. The healthcare sector has attractive long-term headwinds thanks to Australia’s demographics. The acquisition of Bunnings Tool Kit Depot and Beaumont Tiles gives Bunnings more opportunities for growth.
I appreciated Scott’s comments on acquisitions, but still focusing on shareholder returns:
I must emphasize that our investments in these new areas are aimed at generating profit for shareholders. We do not pursue growth for growth’s sake. Rather, we focus on building businesses where we have unique assets and capabilities that will deliver attractive returns to our shareholders.
In my view, Wesfarmers’ lower share price and growth positions make it one of the most attractive ASX blue chip stocks consider