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Wolseley: trading statement
Wolseley, the world’s largest specialist trade distributor of plumbing and heating products and a major supplier of building materials to professional contractors in North America has had a strong start to the year due to healthy sales in North America.
The company said sales for the five months to December rose 25% on the back of good organic sales growth in North America and contributions from recent acquisitions. Trading profits were up around 20%. Favourable exchange rates have added around 3% to the bottom line.
Margins have weakened slightly, partly due to higher input costs of material and partly due to higher expenses in bringing some acquired businesses upto full operating capability.
In the USA; Plumbing and heating distribution reported sales growth of 35% and profit growth of 30%. US building materials sales were up 20% and profits rose by 40% mainly due to acquisitions. Organic growth was said to be in single digits.
European distribution was weaker with sales up 5% but trading profits declining marginally.
The company is reasonably optimistic in its outlook, with the strong performance in North America expected to continue into “the foreseeable future”, a view that we think is very optimistic. We expect the US housing market to start slowing in the medium term (2-3 years). The company expects to see “modest growth” in the UK and France and see some progress in the relatively flat markets in the rest of continental Europe.
Short term prospects do look fairly good and recent acquisitions (totalling approximately £436m) will help support short term growth. Investors looking at the longer term need to take a view on the long term construction market, particularly in North America.
The share trades at 1330p, on a prospective PE (2006 earnings) of 13.1x, at the upper end of the sector range, with a yield of 2.4%.
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