Interactive Investor

Plumbers’ merchant Ferguson unveils near-watertight results

8th December 2020 09:20

Richard Hunter from interactive investor


Share on

Dividend payment and bolt-on acquisitions are a show of strength from a firm with strong foundations.

Plumbers’ merchant Ferguson (LSE:FERG) has made a solid start to the first quarter of its financial year, with each of its regions making progress against a difficult backdrop.

Around 85% of group revenues come from its chief market in the US, where two recent small bolt-on acquisitions mark something of a return to form. 

Meanwhile, the previously announced dividend payment, which leaves the yield at around 2.5%, is a further sign of confidence and that the group has weathered the economic pandemic challenges which came its way.

With US revenues improving in the quarter by 3.2% and underlying trading profit by 11.3%, Ferguson has demonstrated that its previous controls on operating and capital expenditure have borne fruit. 

At the same time, new residential housing starts propelled sales higher, although manufacturing and restricted municipal funding were notable headwinds. 

The UK part of the business in the form of Wolseley was noteworthy, notwithstanding that the unit only accounts for 10% of revenues. 

Underlying trading profit increased by 67% and revenues by 5.2%. From a strategic perspective, the intention remains to separate Wolseley from the rest of the business by way of demerger. But, given the current economic backdrop, there are other options also under consideration. 

In any event, 2021 still seems to be the aim for Ferguson to move to a premium US listing, which should give UK shareholders sufficient time to decide whether to stick with the new-look company.

At the same time, the online offering continued to provide insurance at group level to differing purchasing habits, while net debt remains firmly under control despite the cost of the two acquisitions. 

The group remains somewhat guarded on prospects for the year as a whole, inevitably citing current pandemic trends. Of course, these are of some concern, especially in the chief US market.

Even so, the company has shown resilience during a time which has shaken certain other companies badly and the start to the new trading year has seen the resumption of growth. 

The shares have added 107% since the broad markdowns of the March lows and over the last year are ahead by 27%, as compared to a decline of 9% for the wider FTSE 100

With the group continuing to benefit from the actions it has taken and being underpinned by a robust financial position, the market consensus of the shares has recently nudged higher and now stands at a ‘buy’, based on future prospects.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox

Sign up for a free research account to get the latest news and discussion, and create your own virtual portfolio.

Free Sign Up