Answer To: FIN600/FINA6017_Assessment 2_Case Study Report Page 1 of 9 ASSESSMENT 2 BRIEF Subject Code and Title...
Parul answered on Nov 27 2021
TELSTRA
Student name – ID
FIN600/FINA6017 T3 2020
Assignment – WES
Contents
2Executive Summary
3Introduction - Background and Business
4Company Analysis - Current Financial performance, Key financial highlights, Economic outlook
7Ratio Analysis
17Recommendation
18Conclusion
18References
Executive Summary
This report will give the extensive research and analysis on Wesfarmers. Valuation of Wesfarmers as well as analyzing the financial performance of the company is primarily based on multiple growth factors which drives the revenue and earnings of the company. Moreover, comprehending various rations and DCF valuations are based on some assumptions which is explicitly mentioned in the report (Wesfarmers Annual Report, 2020). I would recommend to investors to keep a closer eye on the stock as it is overvalued by the market. Furthermore, the value of the stock is going down because of trouble with the spread of Corona pandemic Russian currency, economic crisis in Venezuela and demonetization impact in India (Group, 2020).
Fig1 Current Share Price of Wesfarmers (WES) Source: Group, 2020
Comparing with market price of $48-$49.9 intrinsic value of Wesfarmers is $28.6. However, it currently being traded at $49 t0 $50 (as on 27th Nov2020). The stock price of company has consistently dipped in last 15 days from $50 to $48 and is expected to go down further. I would recommend investors to sell the stocks and cash the returns in the process (Group, 2020).
Introduction - Background and Business
Wesfarmers was established in the year 1914 as Western Australian Farmer's cooperative and today it has grown to one of the largest and most successful listed organization in Australian Stock Exchange. Organization is based in Perth, Wesfarmers as an organization has diversified its business into many domains like outdoor living, home improvement, building materials, apparels and general merchandise. Furthermore, business also flourishes in office and technology products, manufacturing as well as developing fertilizers and distribution of chemicals. The organization is one of the largest non-governmental employers in the country with employee strength of 107,000 team members since it is owned by more than 487,000 stakeholders (Wesfarmers Annual Report, 2020). By the virtue of thus report, I have performed detailed analysis on the organization Wesfarmers as well as its business that comprises operations, activities and how is the company performing financially. I have referred the Annual Report of Wesfarmers 2020 in order to deep dive into several key aspects that can enlighten us regarding how is the organization performing financially over the two years taken as a period of research (Group, 2020).
Wesfarmers Limited principally participates in the retail business in Australia, New Zealand, the United Kingdom, and universally. It is engaged with the retail offer of building materials, and home and nursery improvement items through its Bunnings stores; attire, homewares, and general product, including toys, relaxation, amusement, home, consumables, electrical items, and embellishments; and office items and arrangements, for example, office supplies, innovation, furniture, craftsmanship supplies, instruction assets, and accommodating administrations, including print and duplicate and on location technical support through its 167 Officeworks stores. The organization likewise fabricates and supplies alkali, ammonium nitrate, and modern synthetic substances; makes, imports, and circulates phosphate, nitrogen, and potassium-based composts in mixed, compound, and fluid structure; supplies polyvinyl chloride gums utilized in a scope of items containing funneling, link protection, floor covers, building profiles, bundling, and mixes; produces wood-plastic composite items from reused wood and plastic; and makes and disperses sodium cyanide, which is utilized in the digging business for gold extraction. What's more, it concentrates, advertises, and disperses condensed oil gas and melted gaseous petrol; conveys devices, wellbeing gear, work wear, and modern supplies; supplies mechanical, forte, and clinical gases; supplies and circulates support, fix, and working items; and gives hazard the executives and consistence administrations, just as offers property the board administrations. Further, the organization gives its items on the web. Wesfarmers Limited was established in 1914 and is settled in Perth, Australia.
The Wesfarmer's Way
The vision of the organization is very strategic that helps the organization to be forward looking and aligned towards future. It explains where and what organization requires in future. Primary objective of the organization is to offer profits and satisfactory return to the shareholders by the virtue if financial discipline and exceptional management of a diversified portfolio of the business. One of the primary focus of the organization is to make sure that diverse business has solid management capability that is accountable for the development for strategy as well as execution (Wesfarmers Annual Report, 2020).
Company Analysis - Current Financial performance, Key financial highlights, Economic outlook
Analyzing the business performance, I have mixed feeling towards the organization with stock trading at lower price on the Australian Stock Market. Nevertheless, the organization has solid revenue and earning potential in the year 2020. It is one of the few organizations that has declared the dividends of 77 cents for each share. Although in this financial year, organization has witness certain price volatility organization has also been majorly advantageous with customer inclination towards the brand. There has been evolving consumer preferences due to the massive coronavirus pandemic and Wesfarmers has reported solid sales increase all across the office locations of Bunnings and Kmart (Wesfarmers Annual Report, 2020). On a wider spectrum, organization have reported
· There is increase of revenue up to 10.5% accounting to massive $30,846 millions
· There is increase of profits accumulated up to 8.2% accounting to $2,099 million
· Earnings per share (EPS) accounts to 185.6 cents
· Complete year dividend of $1.52 per share that have been reduced by 14.6%
Financial highlights/events of 2020
On a more granular level, the organization's retail arms recorded especially solid outcomes: Bunnings saw its income climb 13.9%, to $14,999 million; Kmart developed its incomes by 7.2%, to $9,217 million; while Officeworks end up being the best performing portion from a top-line viewpoint, with income hitting $2,787 million, on a suggested development pace of 20.4%, while profit (EBIT) rose 13.8% to $190 million (Wesfarmers Annual Report, 2020).
Fig2: Mean, Media and Highest Price of Wesfarmers effective 27th Nov, 2020 (Source: Wesfarmers Limited (ASX:WES) Delivered A Better ROE Than Its Industry, 2020)
Significantly be that as it may and perhaps the most symbolic of the COVID-19 spread actually prompted move in purchaser conduct was the powerful online deals development Wesfarmers recorded in FY20. Here, the organization announced online deals of $2.1 billion; or $1.5 billion (+60%), while barring deals from Catch (Wesfarmers Annual Report, 2020). The organization noticed that this business energy proceeded in July and August over the entirety of the organization's retail arms. At last, Wesfarmers additionally announced a last profit of 77 pennies for each offer and an exceptional profit of 18 pennies for every offer, gotten from the organization's ongoing sell down of its stake in Coles Group (COL). All up, Wesfarmers entire year profits are set to come in at 152 pennies for each offer.
Economic Outlook
July deals were solid, upheld by the reformist returning of economy, clients investing more energy at home and government upgrade. Nonetheless, it was additionally hailed that the desire was for deals to be affected in the close term because of lockdowns in Victoria and New Zealand. Deals are required to be affected however the continuous evacuation of government improvement measures and some client buys in FY20 being presented from FY21,' the organization said (Wesfarmers Annual Report, 2020).
I anticipate that...