Its shares may be down on these results, but Ferguson is still profiting from a buoyant US economy, writes Richard Hunter, head of markets at interactive investor. Here's the analysis.
Ferguson's business may not be the most glamorous, but there is little question that the plumbing supplies company is in a good place.
The group has a large exposure to a US economy which is truly firing on all cylinders, so the fact that 90% of its trading profit emanates from the region turbocharges the numbers. In addition, revenues from the US are showing a 23% contribution from e-commerce, giving some diversification and defensiveness to the results.
The key metrics show a spike in earnings per share, gross margins and trading profit whilst costs remain in focus to streamline the business as much as possible. In the meantime, the company continues selectively to acquire businesses which add to areas in which Ferguson already has particular strengths, and its cash generative nature has allowed a sharp hike to the dividend, whilst the ongoing share buyback programme has been supportive.
These both highlight the strength of the balance sheet as well as management confidence for prospects.
Source: TradingView (*) Monthly chart Past performance is not a guide to future performance
There are, of course, some blots on the investment copybook. Any acquisition carries integration risk, the US economic boom will not continue forever and, even with the hike in the dividend, a yield of just over 2% is not generous.
Meanwhile, the valuation is starting to look quite full, the UK business is under pressure (although a minor contributor to revenues) and even though concerns may be overdone, the very mention of the omnipresent Amazon is enough to cause investors some jitters.
Even so, Ferguson has again delivered a pleasing result with the outlook remaining bright. Investors have certainly been rewarded by this performance, with the shares having risen 33% over the last year, as compared to a 1.7% rise for the wider FTSE 100, and 25% in the last six months alone.
Despite an early bout of profit-taking – the shares fell as much as 6% first thing - amid a tinge of disappointment with an impairment figure which held back pre-tax profit, there seems little to upset the market consensus, which currently stands at a 'buy'.
*Horizontal lines on charts represent previous technical support and resistance.
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