About the author:

Josephine (Jo) Little
Author name:
By Josephine (Jo) Little
Job title:
Senior Analyst
Date posted:
20 February 2014, 10:25 AM
Sectors Covered:
Consumer Discretionary, Industrials & Developers

Wesfarmers (WES) reported 1H14 NPAT of A$1,334 million, in-line with consensus expectations of around A$1,330m. The interim dividend of 85cps was ahead of our forecast (80cps).

Operationally, Coles 1H14 EBIT margin (ex convenience) expanded 30bp to 5.1%, in-line with expectations. However, the 2Q14 comp has disappointed. The key area of surprise is Target which has seen margins drop significantly to just 3.6% in 1H14. Result quality is a little questionable with cash conversion below expectations and the tax rate down.

There may be some small downgrades to FY14, although nothing significant at this stage.


The 1H14 EBIT margin (ex convenience) grew 30bp to 5.1%, in-line with consensus expectations for the full year of around 30bp. This follows a disappointing 2H13 result where the EBIT margin expanded just 5bp. 2Q14 like-for-like growth was 3.8% - below expectations, with volume growth declining 100bp on the 1Q14 level. Overall, the 1H14 result was solid however sale momentum will be a worry.


Bunnings delivered 1H14 EBIT of A$562m, with the EBIT margin down 20bp. This is in-line with our expectations. We note that property sale-and-leasebacks (A$550m) are likely to have added A$39m in costs annually. Adjusting for this, the underlying EBIT margin increased 30bp on pcp. A good result.


1H14 EBIT of A$59m is a soft result, down 37% on the pcp (A$93m). There is no change to FY14 MET coal sales guidance for 7.5-8.5mt, but the company has talked down pricing expectations for 2H14.


The 1H14 margin declined a significant 350bp to 3.6%, compounding a 190bp margin decline in the same period last year. Given new management only commenced just prior to Christmas it is unlikely that operating performance will improve before FY15. Nothing of substance has been provided on the outlook. This business is becoming a major problem.


Kmart's 1h14 EBIT margin grew 50bp, a slowdown from the 110bp increase in 2H13.

More information

We retain our Hold recommendation and a share price target of A$41.70. Morgans clients can access our detailed report on Wesfarmers (WES). If you are interested in finding out more please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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