Wesfarmers Ltd
(ASX: WES) has just launched Bunnings Online, is the share price a buy?
Wesfarmers is a 100 year-old conglomerate which at various times has owned and operated some of Australia’s largest retail brands such as Kmart, Target and more. Today, its largest business is Bunnings Warehouse, the number-one DIY home improvement business.
Bunnings Online
Investors have known that Bunnings was planning to launch an online store for a while, but it announced it to the general public this week.
It will be called ‘MarketLink’ and will sell more things than a normal Bunnings store. It’s going to offer things from an array of manufacturers and sellers, making it more of an online marketplace.
The Bunnings Managing Director Mike Schneider said that the website wants to cover everything from “the front gate to the back fence.”
Australians are steadily buying more things online and I think Bunnings could make a strong impact online.
Everyone knows Bunnings. When it comes to online we have a huge selection of places we can buy items, so we’ll go somewhere we think we will get a good price from a trusted source. I think Bunnings ticks both of these boxes.
What Could This Mean For Wesfarmers?
Wesfarmers already heavily relies on the Bunnings earnings. It generates more than half of Wesfarmers’ EBIT (click here to learn what EBIT means) and the online sales could grow Bunnings even further.
The great thing about Bunnings is that it earned return on capital of 50.5% in FY19, up from 49.4% in FY18. It’s an excellent business and trying to expand your crown jewel business is definitely the right thing to do.
Wesfarmers is valued at 22 times the estimated earnings for the 2021 financial year. This isn’t a terrible price, but there are some reliable businesses that I prefer compared to Wesfarmers, like the ones in the free report below.
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