More on Wolseley
Wolseley: Interim Results
Plumbing, heating and building products supplier Wolseley reported strong earnings for the first half of the year to January 2005, a continuation of the strong growth seen last year. Group sales increased by 10.4% and operating profits by 26.7%, despite adverse currency movements. (Sales grew 23.2% last year and pre-amortisation profits by 31.2%.). Trading margins improved from 5.3% to 6%.
The company reported a high rate of organic growth (11.2% for the group in constant currency terms) in North America and the UK, although acquisitions have undoubtedly contributed to the good performance, just as they did last year. (Wolseley spent £217.7m on 13 acquisitions in the first half which are expected to generate £354m of incremental sales-a 6% growth in turnover). The group has experienced better prices in the USA and margins have improved.
In Europe, Wolseley’s largest market, strong demand for repairs and maintenance along with higher levels of commercial and government spending has seen sales rise 10% in sterling terms. In the UK the company has recorded organic growth of 7.7% and double digit growth in sales and trading profits.
The overall driver of growth seems to have been in repairs and maintenance. New construction has been flat in all markets, only to be expected as the housing market starts to cool. The company expects the rest of the year to be relatively strong but the rate of growth will inevitably slow, partly due to the stronger comparative figures but also due to lower expectations of commodity price inflation-a factor that lead to improved margins. Further acquisitions seem to be on the cards, helped by strong cashflows (of £300.7m compared to £99.4m in 2004) which will drive growth as the markets slow. Gearing has increased sightly to 55.1% (2003:53.9%) but with interest cover at 21× this is not a serious concern. The stock trades at 1095p, on a prospective PE of 13.2× on 2005 earnings which is at the upper end of the sector range but seems justified by the strong performance, the yield is 2.4%
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