No discussion about Wesfarmers' earnings prospects can be complete without reference to the juggernaut Bunnings business.
For context, Bunnings EBIT growth over the past decade has been nothing short of astonishing.
BUNNINGS EBIT GROWTH
2004: 13.0%
2005: 8.6%
2006: 16.5%
2007: 25.7%
2008: 18.4%
2009: 11.9%
2010: 10.5%
2011: 10.2%
2012: 4.9%
2013: 7.5%
2014: 10.0% (f)
2015: 15% (f)
It should not be lost on followers of Wesfarmers that when the housing market is strong, as it has started to be in recent months and looks set to continue, the propensity for homeowners to invest in their properties is significant, as evidenced by the circa 20% growth rates recorded between 2006 and 2008.
I suspect we will, sometime in the next few years see similar acceleration in Bunings earnings.
(Also, don't forget that Wesfarmers has made significant inroads into its sales capability direct to the trade, which was not the case during the last housing cycle peak, so this factor will have greater impetus this time round)
Valuation-wise, for a stock that I expect will grow EPS by around 15%pa over the next three years (even without any rebound from its coal business), I don't think a 10x EVEBITDA multiple is at all demanding.
Accordingly I have been buying some more WES in recent days.
Interestingly, I have bought the Partially Protected shares for the first time ever. The reason being is that the premium on the WESN price over the WES price is now less than 1% currently which I think is a very small insurance premium for a guarantee of $43.11 in value, almost no matter what happens.
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