Blended Australian Equities Portfolio
We have divested our position in Wesfarmers to reduce the portfolio’s exposure to stocks with higher price-earnings ratios and increase dividend income. The proceeds from the Wesfarmers divestment were used to initiate a new position in Metcash (MTS) and add to our existing position in Amcor (AMC). Wesfarmers is a diversified conglomerate with substantial retail holdings and a portfolio of industrial businesses with ~65% of Earnings Before Tax (EBT) coming from its Bunnings Warehouse division. WES currently trades on a forecast FY23 PE of 21.7X.
Metcash is Australia’s leading wholesale distribution and independent retailer services company with three divisions competing in the Food, Liquor and Hardware businesses and is currently trading on a PE of 13.3X. The Company recently announced its 1HFY23 result, which exceeded market expectations. The group saw robust demand and sales volumes, together with contributions from acquisitions underpinning an 8.2% increase in group revenue and 10.3% uplift in underlying EBIT. The Hardware business increased its contribution to 44% of group EBIT, with a solid trading update and outlook for further expansion. Metcash’s execution on the strategies of each of its segments has demonstrated the necessary momentum to retain market share gains for the Food business and continue the footprint expansion of its Hardware store network.
Amcor has a defensive portfolio of with a particular focus on higher margin product segments including healthcare, beverages, pet food and premium coffee capsules and has demonstrated the ability to expand margins via sales and product mix management. We believe the forecast PE of 15.2X still provides valuation upside given its earnings profile and history of conservative guidance, coupled with 4.0% dividend yield and active capital management.