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Morningstar | Wesfarmers Kisses its Last Mine Goodbye, Achieving an Attractive Price, But Our FVE Unchanged. See Updated Analyst Note from 07 Aug 2018

Two years into the review of the resources division, Wesfarmers finalised its exit from coal with an agreement to sell its 40% stake in the Bengalla thermal coal mine to New Hope Corporation. The AUD 860 million transaction price is in line with our implied aftertax Bengalla valuation and we maintain our AUD 37.50 fair value estimate on Wesfarmers, with shares screening as overvalued at current prices. The price tag is also in line with the AUD 865 million New Hope paid Rio Tinto for its initial 40% investment in Bengalla--albeit with two years extra mine life compared with today. Wesfarmers expects to book a pretax profit of around AUD 675 million when the transaction completes in late 2018, subject to conditions.

However, Bengalla's sale was well flagged and is small relative to Wesfarmers' AUD 57 billion market capitalisation. The transaction has no impact on our narrow moat rating for the conglomerate, despite the now slightly greater exposure of earnings to the intensely contested Australian retail market. The narrow moat rating is sourced from cost advantages and intangible assets in the core Bunnings and Coles businesses.

We expect Wesfarmers to focus on capital management in the near term, with proceeds from the sale of the Curragh and Bengalla coal mines shoring up the balance sheet following the demerger from the Coles supermarkets business. A downsized Wesfarmers provides greater capacity to engage in impactful M&A transactions. However, acquisitions also carry risks, demonstrated by the group's challenges encountered at the recently divested Homebase hardware business.