ii view: Ferguson demonstrates its quality

This plumbing merchant has weathered the virus well, with the cancelled interim payment now being paid.

Full-year results to 31 July

• Revenue down 0.9% to $21.82 billion
• Pre-tax profit down 4.8% to $1.26 billion
• Net debt down 15% $1.01 billion
• Total full-year dividend unchanged at 208.2 US cents

Chief executive Kevin Murphy said:

"We have delivered a strong performance in 2020, which given the global pandemic has highlighted the resilience of our business model. Early in the crisis we moved decisively to protect the health and wellbeing of our associates while continuing to serve our customers supporting critical infrastructure. We have rapidly adjusted our ways of working to adapt to this new operating reality while taking action to lower the cost base. We have also managed working capital and capital expenditure which alongside the strong profit delivery has led to an excellent cash performance.

"It is impossible to predict the future progress of the virus, or its economic impact and we expect the current levels of uncertainty to continue for the foreseeable future. However, the fundamental aspects of our business model remain attractive and since the start of the new financial year Ferguson has generated low single digit revenue growth in the US in flat markets overall. While we remain cautious on the outlook for the year as a whole, the business is in good shape and well prepared to address any further market related disruption."

ii round-up:

Ferguson (LSE:FERG) is a major trade distributor of plumbing and heating products across the US, UK and Canada. 

It employs approximately 34,000 people across more than 2,200 outlets, generating around 86% of its sales or revenues in the USA. 

Management is now working on the separation or demerger of its UK business. 

For a round-up of these latest results, please click here. 

ii view:

A valuation for Ferguson below its US stock market peers originally brought it to the attention of US activist investor Nelson Peltz. Peltz noted at the time that the company was “an attractive business that trades at a discount to comparable US peers." Now and despite the interruption of Covid-19, the wheels of a move to the US are in motion. 

For investors, a 36.5% gain in the share price over the course of 2019 suggests that moves toward the US have had a positive impact, although the shares are down around 15% in 2020. Looking ahead, a US stock market listing for Ferguson may not suit all investors. Some UK-only investment funds may need to sell. 

But Ferguson has proved resilient in a pandemic that has hugely disrupted others. A final dividend payment equal to both the previously cancelled interim and the end of year return, thereby equalling last year’s payment, is testament to its weathering of the crisis. A historic income yield of around 2% is now back on offer. Clearly Ferguson remains well-managed and, for now, ongoing patience and a ‘wait and see’ approach looks to remain sensible. 

Positives: 

• Key US sales up 2.7%
• Restoring dividend payment

Negatives:

• Ongoing Covid-19 uncertainty
• UK revenue down 15%

The average rating of stock market analysts:

Strong hold