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Risk Warning
29/03/2011
As the market drifts lower Wolseley is bucking the trend after the building materials group revived dividend payments alongside a jump in half year profits.
The company's shares have climbed 72p to £21.61 - a 3.5% increase - as it reported a 64% rise in trading profits to £275m. At the pretax level it moved from a £261m loss to a £195m profit, as its key construction markets stabilised after a prolonged downturn. It has decided to pay a 15p a share interim dividend despite expressing some caution about the outlook. Chief executive Ian Meakins said:
The overall macro-economic environment in several regions continues to be fragile and pricing competition remains intense. The impact of recent VAT increases and government spending cuts leaves the outlook in the UK more uncertain.
The group expects to grow in the second half, although the comparatives will now be much more demanding. The reinstatement of the dividend reflects the strength of our balance sheet and our confidence in the future trading prospects of the group.
Bathstore, which the company is trying to sell, saw half year revenues down 9%, with reports yesterday that bidder Electra had decided to withdraw.
Richard Curr, head of dealing at Prime Markets, said the company had made an impressive turnaround and issued a buy recommendation:
Even with the caution expressed over the market and pricing competition, Prime Markets views Wolseley as a tightly run ship, and believes the group are well on the way to an upward re-rating, current strong share price performance notwithstanding.
But Caroline de La Soujeole at Seymour Pierce kept a sell rating, saying:
These results are in line with our expectations, we therefore leave our 2011 forecasts unchanged (pretax profit of £470.3m and adjusted earnings per share of 116p). On our current estimates, the company is trading on a prospective PE of 17.9 times 2011 estimates.
We have cautioned in the past that the market seemed to be pricing in further radical restructuring. We think this is unlikely in the short term. 2011 will be shaped by macroeconomic factors rather than internal actions. Given the lacklustre outlook for construction activity and weak consumer confidence, there are insufficient grounds for further optimism. We remain sellers with a 1,700p target price.
Despite Wolseley's rise the FTSE 100 is down 9.39 points at 5895.10 after four days of rises. Defensive stocks such as tobacco are in favour, with British American Tobacco up 22.5p at £24.30.
But with the continuing uncertainty about its Russian deals and a downgrade from Collins Stewart, BP is down 7.45p at 469.65p. The broker moved from hold to sell, partly on the Russian situation and partly on valuation grounds.
There are also reports of possible manslaughter charges in the US relating to the Gulf of Mexico rig explosion which killed 11 people.
Among the mid-caps SuperGroup slipped 55p to £14.45 following news that chief operating officer Diane Savory had decided to step down from the board and leave the company due to personal reasons. She has been with the company for 20 years and played a key part in its development and its flotation a year ago. Freddie George at Seymour Pierce said:
We would not read anything negative in this resignation and believe that following recent appointments her responsibilities will be adequately covered by existing employees. She is expected to leave mid May.
We remain comfortable with our 2011 and 2012 pre-tax profit forecasts of £48.5m and £66.5m respectively. The stock remains a buy with a price target of 2000p.
Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it carries a high degree of risk. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. If in any doubt, please seek independent financial advice.