The US construction market remained in good health in the six months to the end of January 2018, which is good news for Ferguson (FERG), formerly known as Wolseley, because US markets accounted for 89 per cent of group trading profits. And earnings for the full year will benefit from a cut in US taxes, with Ferguson’s tax rate this year expected to fall from 28 per cent to 25 per cent and to come in at between 21 per cent and 22 per cent in 2019.
The plumbing and heating products supplier is also expected to complete the sale of its Nordic business, Stark, by the end of March, raising $1.2bn (£850m). Around $1bn of this will be returned to shareholders through a special dividend and share consolidation, equivalent to 400¢ a share.
Revenue generated in the US grew by 8.7 per cent on an organic basis, with a further 1.8 per cent coming via three bolt-on acquisitions with annualised revenue of $132m. Gross margins edged ahead from 29 per cent to 29.4 per cent, thanks to an improved product mix and better labour productivity. These were enough to offset labour cost inflation, which was running at 3 per cent to 4 per cent.
Trading in the UK accounts for just 5 per cent of group trading profits, and conditions here were much tougher. Organic revenue growth was just 0.5 per cent, and revenue is expected to fall by around 10 per cent following the closure of some branches and discontinuing certain low-margin business lines. Trading profits fell by $6m to $38m, while margins slipped from 3.5 per cent to 2.8 per cent. A further 52 branches are earmarked for closure, which should lead to a significant reduction in central support costs.
Canada and central Europe generate 6 per cent of group profits, and organic revenue grew by 7.8 per cent, with a further 1.9 per cent coming from acquisitions. Trading profits grew by $11m from a year earlier to $41m, while margins rose from 4.6 per cent to 5.4 per cent.
Analysts at Numis are forecasting adjusted pre-tax profits of $1.35bn and EPS of 418¢ for the year to July 2018 (from $1.29bn and 366¢ in 2017).
| FERGUSON (FERG) | ||||
| ORD PRICE: | 5,390p | MARKET VALUE: | £13.4bn | |
| TOUCH: | 5,388-5,392p | 12-MONTH HIGH: | 5,722p | LOW: 4,427p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 1,830¢* | NET DEBT: | 31% | |
| Half-year to 31 Jan | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2017** | 9.38 | 556 | 159 | 52.1 |
| 2018 | 10.03 | 598 | 176 | 57.4 |
| % change | +7 | +8 | +10 | +10 |
| Ex-div: | 5 Apr | |||
| Payment: | 27 Apr | |||
| *Includes intangible assets of £1.51bn, or 608¢ a share **Re-stated for denomination change,1=$1.416 | ||||
