What's new:
■ Revenues up 4.7 per cent in third quarter
■ Trading profit up 10.3 per cent
■ Net debt cut by £190m to £277m since January
Wolseley made steady progress in the third quarter to end April, boosting trading profits by over 10 per cent to £139m as weakness in European markets was more than offset by good growth in the US and Canada. On a like-for-like basis, turnover for the world's largest supplier of heating and plumbing equipment rose by 3.8 per cent to £3.07bn in the three month period, and despite considerable downward pressure on prices, gross margins were maintained at 27.7 per cent.
Underlying turnover in the US increased by 9.4 per cent in the third quarter which in turn boosted trading profit by 25 per cent to £95m to account for over two thirds of the group total. Most key parts of the business in the region boosted market share and crucially, while the repair, maintenance and improvement market remained broadly flat, the modest recovery seen in the house building market is continuing.
Group finances are improving too as net borrowings have been halved from £591m a year ago to £277m. The group could even be in a net cash position by the end of 2012.
UBS says...
Buy. Weaker trends in Europe spoil the picture and will continue to put a brake on the pace of overall growth within the group, with sales especially weak in France - down 6.1 per cent - and in the Nordic regions - down 1.7 per cent. That said, the business offers long-term growth potential, especially in the US, and is generating decent amounts of cash. We expect to see the group move into a net cash position by the end of the calendar year and forecast pre-tax profits of £547m and EPS of 167p in the 12 months to July 2012, rising to £674m and 194p, respectively, the year after.
Citi says...
Buy. Wolseley is growing nicely in the US and Canada, and even the sharp fall in sales in France is explained partly by the disposal of Brossette. Although management has made little mention of what is happening in the fourth quarter, we believe that consensus estimates are not pricing in all the growth potential. The group has a strong balance sheet and is seeing ongoing improvement in margins in the US and Canada. We rate the shares a top pick in the sector priced on 11.5 times earnings estimates for the financial year to July 2013 and have a target price of £28.50.
