ii view: plumbing giant Ferguson heats up investor returns

A move to a primary US stock market listing is pending but the former Wolseley firm is making progress. We assess prospects. 

First-half results to 31 January

• Net sales up 29% to $13.31 billion
• Pre-tax profit up 72% to $1.24 billion
• Interim dividend up 15% to 84 US cents per share
• Doubled its share buyback programme to $2 billion
• Net debt up 104% to $2.21 billion

ii round-up:

Ferguson (LSE:FERG) sells plumbing, heating, ventilation and air conditioning products to builders in North America.

A current FTSE 100 index member, it also owns the e-commence website Build.com. 

Its biggest slug of sales at around 94% are made across the USA, with the balance generated in Canada. 

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

ii view:

Founded over 100 years ago, today Ferguson operates from more than 1,600 locations across North America. Just over half its sales are generated via residential markets, with the balance in non-residential areas including infrastructure and industrial markets. Ferguson sold it UK Wolseley business earlier in 2021 for $420 million, returning proceeds to shareholders through a special dividend payment. 

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For investors, the outlook is clouded by a combination of rising interest rates potentially dampening housing markets, elevated commodity prices feeding into product prices and generally higher business costs. Expected tougher second-half comparatives should not be forgotten. Neither should a pending move to a primary US stock market listing, and an expected exit as a constituent of the FTSE 100 index along with potential selling by UK index tracking funds. 

On the upside, management is now more focused on its pure North American business. Market share gains continue to be won, while bolt-on acquisitions are back being made. A further $1 billion has been added to its share buyback programme, while an estimated future dividend yield of just over 2% is not totally derisory in an era of still ultra-low interest rates. In all, while grounds for caution persist, a consensus analyst estimate of fair value at over £125 per share looks to give scope for longer term optimism. 

Positives: 

• Increased geographical focus
• Ongoing share buy-back programme

Negatives:

• Rising costs
• Uncertain economic outlook 

The average rating of stock market analysts:

Buy