Credit Suisse suggests the restructuring of Target is unlikely to shift investor views regarding Wesfarmers. The company will spend $240-310m on the restructuring.
The broker, preferring to remain on the sidelines while the portfolio is reshaped, suspects most institutional investors value Wesfarmers in relation to Bunnings and would react negatively to any dilution of the weighting of that business.
Between 10 and 40 large-form Target stores will be converted to Kmart and 10-25 large Target stores will be closed. Target Country will cease, with 50 stores to close and 52 to be converted to Kmart.
The changes leave Wesfarmers with around 30% of invested capital in the Kmart group. Credit Suisse retains a Neutral rating and raises the target to $35.32 from $34.65.
Sector: Food & Staples Retailing.
Target price is $35.32.Current Price is $38.86. Difference: ($3.54) – (brackets indicate current price is over target). If WES meets the Credit Suisse target it will return approximately -10% (excluding dividends, fees and charges – negative figures indicate an expected loss).
