Wesfarmers’s Demerging of Coles Has Positives, But our DCF-Based FVE Is Unmoved
Narrow-moat Wesfarmers surprised investors with the demerger proposal of Coles, and in our opinion, the move makes sense. The restructure splits the highly profitable Bunnings and Kmart businesses, both market leaders in their respective categories, from the slow-growing Coles supermarkets business facing fierce competition and declining EBIT margins. By separating these two opposing investment propositions, investors are provided with a clearer choice. Also, Wesfarmers post-demerger, which we e...Wesfarmers is engaged in the retailing operations including supermarkets, merchandise and department stores, fuel, liquor and convenience outlets; retailing of home improvement and outdoor living products and supply of building materials; retailing of office and technology products; coal mining and production; gas processing and distribution; industrial and safety product distribution; and chemicals and fertilisers manufacture; and investments. Co.'s retail operations includes Coles, which operates Coles Supermarkets, Coles Express, Liquorland, Vintage Cellars, First Choice Liquor, and Spirit Hotels, among others; while its departmental operations include Kmart and Target retailers.
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