Wolseley plc Ordinary 25p (WOS)

Company overview

The group's core activity is the distribution and retail of plumbing and central heating equipment, including pipes, valves and fittings. Other products supplied are lumber and building material products in the USA. Products are predominantly distributed to the professional trades across the UK, Europe and North America.

HL Comment (16 July 2008)

Wolseley plc is the world's largest specialist trade distributor of plumbing and heating products to professional contractors and a leading supplier of building materials in North America, the UK and Continental Europe. The group has around 75,000 employees operating in 27 countries including the UK, USA, France, Canada, Ireland and much of Europe. The company operates some 1500 branches across the UK under such names as ‘Plumb Center’ or ‘Pipe Center’ and predominantly supplies the professional trades. The US division works under the ‘Ferguson’ and ‘Stock Building Supply’ brands via around 1600 branches. In recent years the group has grown via a series of bolt-on acquisitions, particularly in the USA, where around 60pc of company revenues have recently been generated.

In recent months, the property downturn in the USA has began to take its toll on group profits. Half year results announced back in mid March (2008) saw pre-tax profits decline by just under 30pc to £233m, as the group’s US building supplies business saw a profit turned into a loss. More recently (16July08) the group’s eleven month trading update noted a continuing deterioration, with difficulties in the USA spreading to the UK and Ireland, along with other parts of Europe. The fallout from the housebuilders appears to be rippling out to the secondary building and plumbing merchants such as Wolseley. Furthermore, like many of the UK housebuilders, the dividend payment is to be cut.

Acting for positive investor sentiment, management has been taking decisive action in order to offset the expected decline in profits, including axeing some 6000 jobs since August 2007. Furthermore, like their housebuilding counterparts, a significant focus is being placed on both reducing debt and concentrating on cashflow, including cutting the dividend payment. On the negative side of the equation, with Wolseley having ratcheted up it debt levels to over £2.5 billion via a series of bolt-on acquisitions in recent years, investor nerves remain frayed. Furthermore, set against still tightening credit conditions and deteriorating property markets, there is little comfort management can offer in relation to the outlook. For now, market consensus opinion remains negative in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 31st July 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).