Wesfarmers Ltd (ASX: WES)

Wesfarmers Ltd is an ASX listed diversified entity that has business operations in retail and industrial activities.

Recommendation Rationale – SELL at AUD 54.12

• Increased Overheads: During FY23, Group overheads increased by AU$10 million YoY, primarily due to higher employee costs. Elevated inflation, low employment, and higher interest rates might continue to impact the business in the short-term.
• Profit Booking: MGR’s share price surpassed the R1 level suggested in the previous report on 6 June 2023; hence, it is giving a profit booking opportunity.
• Technical Indicator: The momentum oscillator, 14-day RSI is trading at ~72.29 levels, which is approaching the overbought zone.
• Overvalued Multiples: On a forward 12-month basis, key valuation multiples (EV/Sales, EV/EBITDA, Price/Cash Flow, Price/Book, and Price/Earnings) are higher than the median of the Diversified Retail industry.

WES Daily Chart

 (Source: REFINITIV, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY24E) (Illustrative)

Considering that the resistance level, and risks associated, it is prudent to exit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current price of AUD 54.12 (as 1 September 2023, at 3:15 PM AEST).

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 1 September 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Dividend Yield may vary as per the stock price movement. 

Disclaimer

Kalkine New Zealand Limited is a Financial Advice Provider (“FAP”) and is authorised by a Class 1 Financial Advice Provider Licence issued by Financial Markets Authority (“FMA”) to provide financial advice. Kalkine provides only general financial advice through its research reports following a person becoming a member. The reports contain buy/sell/hold and other recommendations in relation to equity financial products. The recommendations and opinions [on this website] / [in this report] do not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions. If you act on the advice in the research reports, you may have to pay fees, expenses or other amounts (but not to Kalkine).  Further information about the complaints and dispute resolution process, as well as information about Kalkine’s duties are available on Kalkine’s website.  Please read our Financial Advice Provider (FAP) disclosure statement and Complaints Handling Guide, which are available on the website.