Wesfarmers Drops 1.7% on Non-Retail Expansion

Wesfarmers Ltd [ASX:WES] dropped 1.7% this morning to $41.89 per share.

What happened?

New Wesfarmers CEO Rob Scott revealed his plans for growth, as reported by The Australian Financial Review. However, his strategy has little to do with retail expansion.

Scott said he would be patient with further mergers and acquisitions (M&A).

What I’ve learnt from my time in M&A is there are good transactions and bad transactions and you need to be patient and conditions need to be conductive to doing good M&A,’ Scott told the AFR.

Instead, Scott is keen to expand Wesfarmers’ industrial business. The company’s industrial division contributed $377 million to earnings in the first half of FY17.

Yet Scott won’t ignore retail completely. He does see an opportunity to expand Officeworks.

What now for ASX:WES?

While Wesfarmers is a retail business, developing their industrial division might not be the worst idea. In the first half of FY17, industrial earnings improved significantly. The group said the improved results were thanks to rising coal prices and a continued focus on cost control.

Scott, as incoming CEO, will also be incentivised on his performance. As reported by the AFR: ‘Within two years 100 per cent of Mr Scott’s at-risk pay will be in the form of Wesfarmers shares rather than cash.

Wesfarmers is a stock you’ll likely want to keep your eye on in 2017.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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