---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 169858
conversation_id: 1a7f235f-9a46-4196-8546-1c79499a27ed
citations: 11
created: 2026-05-31 19:58:34Z
---

# What’s the bull case bear case for Wesfarmers?

# Wesfarmers (ASX: WES) — Bull / Bear Framework

Wesfarmers is an A$100bn+ Australian diversified conglomerate spanning hardware (Bunnings), discount general merchandise (Kmart, Target), office products (Officeworks), chemicals/energy/fertilisers/lithium (WesCEF), health/pharmacy (Priceline, InstantScripts) and industrial/safety (Blackwoods, Workwear Group). The framework below is grounded in the most recent disclosures — 1H FY26 results (six months to 31-Dec-2025) and the Oct-2025 AGM.

## Headline 1H FY26 set-up (the ground truth)

| Metric (A$m, 1H ended 31-Dec) | 1H26 | 1H25 | Δ |
|---|---|---|---|
| Revenue | 24,212 | 23,490 | +3.1% |
| EBIT | 2,493 | 2,299 | +8.4% |
| NPAT | 1,603 | 1,467 | +9.3% |
| Free cash flow | 2,745 | 2,025 | +35.6% |
| Interim dividend (cps, fully franked) | 102 | 95 | +7.4% |
| Return on equity (R12, ex-sig.) | 32.7% | 31.2% | +1.5 ppt |
| Net financial debt | 4,878 | 3,938 | +23.9% |
| Debt / EBITDA (ex-sig.) | 1.9x | 1.7x | +0.2x |

Source: WES 1H26 results presentation [9].

1H26 NPAT rose **9.3% to A$1.6bn**, underpinned by Bunnings, Kmart and emerging contributions from lithium and Health [1]. FY25 NPAT (ex-sig.) was a record **A$2.7bn (+3.8% YoY)** with the diversified-conglomerate model cushioning weaker WesCEF / I&S [7].

---

## BULL CASE

### 1. Bunnings + Kmart are best-in-class category-killers compounding through the cycle
- Bunnings 1H26 sales **A$10.7bn (+4.0% total / +4.2% comp)**; Kmart Group **A$6.4bn (+3.2% total / +2.8% comp)** [8] — both grew comp sales despite "challenging market conditions" with "higher cost of living pressures" still weighing on Australian households [1].
- Productivity initiatives let WES **reinvest in lower prices** while still expanding EBIT margins — "for businesses such as Bunnings and Kmart, low prices drive sales growth and support operating leverage, with earnings growing faster than sales" [1].
- Kmart's vertically integrated **Anko private label** continues to widen its moat; monthly active app users now **>1.6m** and Kmart has just launched a **third-party marketplace with early positive trading results** [10] — both expanding addressable market without proportional capex.

### 2. Capital discipline + premium ROE
- 1H26 **ROE (R12) 32.7%**, up 150 bps YoY [9] — Wesfarmers is among the highest-return diversified industrials in the ASX200.
- FCF grew **+35.6% to A$2.75bn** in 1H26 supported by Coregas + BPI divestments [9]; capital management distribution of **A$1.50/share (A$1.7bn)** returned to shareholders in December [9].
- Balance sheet still investment-grade at **1.9x debt/EBITDA** with ~A$1.3bn of unused bank facilities [9].
- Interim dividend lifted **+7.4% to A$1.02/sh fully franked** [9].

### 3. Health is finally an earnings engine, not a drag
- Priceline Pharmacy **network sales +14.4%**, supported by network expansion, promotional execution and expanded private label [6].
- Wholesale (API) materially improved on new pharmacy customers and supply-chain productivity; Digital Health (InstantScripts) accelerating on GLP-1 / weight-loss demand [6].
- WES has reframed Health from "M&A integration risk" to a **structural growth platform** levered to aging-population scripts and the GLP-1 wave.

### 4. Lithium is starting to pay back
- Mt Holland mine + concentrator running **at or above nameplate**; Covalent JV (with SQM) sold first battery-grade hydroxide tonnes profitably [4-context, 9].
- Once the LiOH refinery clears its current commissioning issues, it adds a **counter-cyclical commodity earnings stream** to the conglomerate.

### 5. AI / digitisation = self-help margin lever
- Management is explicitly leaning into **generative and agentic AI** to "accelerate existing strategies at a lower cost"; all 120,000 team members being trained [5]. This is a credible cost-out and EDLP-defence lever in a world where Amazon and Temu are intensifying retail competition.

### 6. New WesCEF capacity tied to WA mining capex super-cycle
- Ammonium nitrate capacity lifted **40ktpa to 865ktpa** with two further nitric acid plants to debottleneck, feeding strong WA iron-ore / gold mining demand [9, slide context].

### 7. Defense-sector tailwind for Industrial & Safety
- Workwear Group has secured **new strategic customer commitments in the defence sector commencing FY27** — material because I&S has been the laggard division and AUKUS-driven defence spend is now a multi-year visible pipeline [11].

---

## BEAR CASE

### 1. Valuation premium leaves no room for execution slippage
- WES trades on one of the highest forward PEs in the ASX200 industrials. The bull case (premium ROE, conglomerate quality, Kmart compounding) is **already in the price** — there is limited multiple expansion left and high-single-digit EPS growth must be delivered every half just to defend the rating.

### 2. Australian consumer is fragile
- Management itself frames the result as delivered "in a challenging operating environment" with "persistent inflation" and "higher cost of living pressures" continuing to weigh on households [1]. Comp sales in Kmart (+2.8%) are decelerating vs prior periods, and any Australian recession or unemployment shock hits the discretionary categories (Kmart, Officeworks, Bunnings DIY) first.

### 3. Officeworks is structurally challenged and now in restructuring
- Officeworks earnings **fell A$19m in 1H26**, with a further **A$25m of one-off transformation costs flagged for 2H26** (restructuring + ERP replacement) [3, 4]. New MD has a "bold change" mandate — this is essentially admission that the prior operating model is no longer competitive against Amazon / pure-play e-commerce.

### 4. Officeworks isn't the only soft spot
- WesCEF revenue **-3.2% YoY** in 1H26 [8]; chemicals earnings flat with lower ammonia offsetting AN strength; Kleenheat hit by **lower Saudi CP LPG pricing** [4].
- Industrial & Safety still subscale and reliant on the defence pipeline that doesn't begin until FY27 [11].

### 5. Covalent lithium refinery has slipped — again
- The Kwinana LiOH refinery's ramp-up has been **"affected by intermittent odour issues"** with engineering remediation only due "by mid-calendar year" [3]. WES has now sunk significant capex into a project that has consistently disappointed on timing — and one of its peers has already "stepped away from the market" (Phil Kimber's question to management) [transcript context]. The hydroxide price environment can shift quickly; this is execution risk against a falling-knife commodity.

### 6. Capex intensity is climbing into a softer cycle
- FY26 net capex guided at **A$1.0–1.3bn** [4]. Combined with the A$1.7bn December capital return, **net debt jumped 23.9% to A$4.9bn**, lifting leverage to 1.9x [9].
- "Higher average net debt and higher finance costs in the second half" was explicitly flagged [9] — i.e., 2H26 interest cost headwind is visible.

### 7. Bunnings = single point of failure
- Bunnings continues to be the dominant earnings contributor. Any structural shock — Amazon home & garden push, IKEA expansion, a sharp downturn in Australian housing turnover, or successful entry by a credible big-box DIY competitor — would disproportionately damage group earnings power. Concentration risk is the flip side of the "category-killer" bull thesis.

### 8. Conglomerate discount risk re-emerging
- Health, Lithium and OneDigital are still loss-making or low-return relative to retail; if the lithium ramp continues to slip, the bear narrative shifts to "Bunnings + Kmart subsidising adjacencies" and a re-rating of the sum-of-the-parts.

### 9. Infinity (pharmacy franchisee) administration
- Management acknowledged **lost trust in Infinity Group's** ability to resolve its debt, with the administrator process ongoing [transcript context]. Outcome could mean reshuffling of stores within the Priceline network — short-term Health earnings risk.

### 10. Capital deployment optionality dwindling
- After the A$1.7bn special distribution, headroom for the next big diversifying acquisition has narrowed. Without a credible new growth platform to replace what Coles, Bunnings, Kmart and WesCEF once jointly compounded, the long-duration growth story rests heavily on Health and Lithium maturing on schedule — neither is guaranteed.

---

## How to weight it

| Signal | Reading |
|---|---|
| Earnings momentum | Bullish — broad-based growth across 5 of 6 divisions [1] |
| Cash returns | Bullish — div +7.4%, capital return executed [9] |
| Balance sheet | Neutral — leverage rising but well within IG [9] |
| Consumer exposure | Bearish — cost-of-living drag persists [1] |
| Lithium / WesCEF | Bearish near-term — odour issues + LPG pricing [3, 4] |
| Officeworks / I&S | Bearish near-term — restructuring drag [3] |
| Valuation | Bearish — premium multiple |
| Self-help (AI / EDLP) | Bullish — credible productivity runway [5] |

**Bottom line:** The bull case is "best-in-class Australian compounder with Health + Lithium optionality and an AI productivity tailwind"; the bear case is "fair-to-pay-for execution priced as if execution is certain — and right now Officeworks, WesCEF and the lithium refinery are *not* executing." Most catalysts (lithium ramp, defence contracts, Officeworks transformation, FY26 strategy day) are 2H26 / FY27 events — so positioning into that window is the trade.

---

**Sources**
[1] Wesfarmers Ltd. — Q2 (1H) FY2026 Earnings Call, 18-Feb-2026 (Robert Scott, MD opening)
[2] Wesfarmers Ltd. — Q2 (1H) FY2026 Earnings Call, 18-Feb-2026 (Officeworks transformation commentary)
[3] Wesfarmers Ltd. — Q2 (1H) FY2026 Earnings Call, 18-Feb-2026 (Anthony Gianotti CFO — WesCEF / Officeworks / Covalent)
[4] Wesfarmers Ltd. — Q2 (1H) FY2026 Earnings Call, 18-Feb-2026 (CFO — FY26 capex guide, balance sheet)
[5] Wesfarmers Ltd. — Q2 (1H) FY2026 Earnings Call, 18-Feb-2026 (Rob Scott — AI / productivity strategy)
[6] Wesfarmers Ltd. — Q2 (1H) FY2026 Earnings Call, 18-Feb-2026 (Emily Amos — Wesfarmers Health)
[7] Wesfarmers Ltd. — Annual General Meeting, 30-Oct-2025 (Michael Chaney, Chairman — FY25 result)
[8] Wesfarmers Ltd. — H1 2026 Results Briefing Presentation (Divisional sales summary)
[9] Wesfarmers Ltd. — H1 2026 Results Briefing Presentation (Group performance summary table)
[10] Wesfarmers Ltd. — H1 2026 Results Briefing Presentation (Kmart divisional highlights)
[11] Wesfarmers Ltd. — H1 2026 Results Briefing Presentation (Industrial & Safety — defence commitments)

## Citations

- [1] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [2] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [3] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [4] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [5] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [6] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [7] **Wesfarmers Ltd., Annual General Meeting, 30-October-2025 1** · external
- [8] **Wesfarmers Limited, H1 2026** · external
- [9] **Wesfarmers Limited, H1 2026** · external
- [10] **Wesfarmers Limited, H1 2026** · external
- [11] **Wesfarmers Limited, H1 2026** · external

