WES share price in focus
Founded in 1914, Wesfarmers is a diversified Australian conglomerate headquartered in Perth. Its operations span retail, chemical, fertiliser, industrial and safety brands and products across Australia and New Zealand.
Wesfarmers is often compared to a publicly listed private equity firm. It has a long history of buying businesses, leveraging their cash flow, re-investing in growth and eventually selling them for a premium. A notable example of this is Coles Group, which it bought in 2007 and spun out in 2018. However, by far (over 50%) of the company’s operating profit comes from Bunnings, the #1 hardware and home improvement business in Australia. Wesfarmers began buying parcels in Bunnings in 1987, eventually acquiring the final 52% in 1994 for $594 million.
Wesfarmers has long been considered a leading blue chip stock on the ASX and is known for paying a consistent dividend. Other well-known brands under the Wesfarmers umbrella include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy.
MIN shares
Mineral Resources Limited is a diversified Australian mining company focused on lithium and iron ore extraction across Western Australia.
MIN also provides mining and engineering services for external clients through its wholly-owned subsidiary, CSI Mining Services (CSI). Through CSI, Mineral Resources can provide capital infrastructure and operational expertise to clients across WA, Queensland, and the Northern Territory.
MIN aims to set itself apart from its competitors by maintaining in-house engineering and construction capability that grants full control and flexibility during product development.
WES share price valuation
We would consider WES to be a ‘mature’ or ‘blue-chip’ business, so some of the metrics that could be worth considering include the debt/equity ratio, average yield, and return on equity, or ROE. These measures give us a sense of the company’s debt levels, their ability to generate returns from their assets, and their ability to consistently return profits to shareholders.
For FY24, Wesfarmers Ltd reported a debt/equity ratio of 131.4%, meaning the company is leveraged (it has more debt than equity). This can increase risk so it’s important that a leveraged company is generating stable returns and has sufficient cash flow to pay interest on its debts.
Over the last 5 years, WES has delivered an average dividend yield of 3.4% per year. This is important to note if you’re looking for income from your investments.
Finally, in FY24, WES reported an ROE of 30.3%. For a mature business you generally want to see an ROE of more than 10%, so WES clears this hurdle.
In FY24, Mineral Resources Ltd reported a debt/equity ratio of 148.9%, meaning the company is leveraged.
As for dividends, since 2019 MIN has achieved an average dividend yield of 2.4% per year, and in FY24 reported an ROE of 3.2%
It’s important to keep in mind that these are only a small selection of metrics and don’t give us enough information to value the business or make an investment decision. To learn more about valuation, check out one of our free online investing courses.
