Credit Suisse believes Wesfarmers has gone a long way towards stabilising previous problems, including Target, and Blackwoods and is continuing to build interesting near- and longer-term growth in Kmart/Catch, Bunnings/Commercial, and Officeworks.
The Covalent lithium investment is Wesfarmers’ largest single investment commitment ($950mn) with completion planned for 2024.
In a departure from previous avoidance of increasing its commodity production footprint an expansion of ammonia production capacity to replace current imports is being considered.
Credit Suisse believes expansion would be an investment of $180m ($1,200/t for a brownfield expansion of ~150kt) and based on the broker’s long-term forecasts for ammonia, Wesfarmers would need gas at $6/gj to make the economics sufficiently attractive.
The broker retains a Neutral rating and lowers the target to $57.23 from $57.32 after a few minor adjustments to chemicals forecasts.
Sector: Food & Staples Retailing.
Target price is $57.23.Current Price is $55.11. Difference: $2.12 – (brackets indicate current price is over target). If WES meets the Credit Suisse target it will return approximately 4% (excluding dividends, fees and charges – negative figures indicate an expected loss).
