My reluctant decision to sell WES

This week I made my first share sale of any kind since 2019 and wanted to record my reasoning to see whether I get proved wrong or right over the coming years!

I've been holding WES since 2018 (just after the Coles demerger) and had an average price of $34 adjusted for the 2021 capital return along with an additional purchase I made at $48 in the 2022 correction. These purchases were made at an average PE multiple of 18 (pretty appealing for a high quality business) and an ordinary dividend yield around 4.5% not factoring in the special dividend that was paid shortly after my initial investment thanks to the Coal sale.

I think WES is absolutely top quality but hasn't fundamentally changed as a company in the time that I owned it other than the Lithium project coming on line soon which I've never had any idea how to value. Despite this we've rapidly expanded out to a record PE multiple of 37 despite the historical average in the past three financial years hovering between 22 and 26 along with an all time low dividend yield.

Those ultra high earnings multiples could be considered somewhat justified on a high growth technology company but in Australia we're suddenly applying them to low growth blue chip dividend payers like WES and CBA. WES should certainly trade at a premium to the ASX200 (I would consider 25 times earnings to be approx fair value) but when an overly optimistic market is sitting at 21 times earnings and we're at 37 I think things have gotten a bit illogical.

This is also considered in the context of a broader market that's bounced back incredibly quickly from what should have been a sustained correction. That's made me think the mood is overly optimistic so I have taken some profits off the table and used the proceeds to pay down the mortgage on my residential house.

I do feel like I've slashed one of the best flowers in my garden and may be proved wrong (probably the most logical place that could happen is if the ANKO brand becomes huge overseas and gives WES a whole new growth leg) but even a great company can become a poor investment at the wrong price and I think that's well and truly happened here.