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Wolseley: FY2006 trading statement
Wolseley, specialist trade distributor of plumbing and heating products to professional contractors and a supplier of building materials, issued an upbeat trading statement for the 11 months to June 2006.
Driven by high rates of organic growth (particularly in North America) as well as acquisitions, the company has seen “strong” increase in revenue and profits for the period.
Total revenue has grown by 25% in the period including double digit organic growth while trading profits have risen by 20%. Favourable exchange rates helped boost the results by around 3%.
North America seems to account for the bulk of the company’s growth and reflects the relative strength of the housing market in that continent. Performance in Europe was far weaker in comparison and driven mainly by acquisitions, not organic growth.
In America, sales and profits have grown ‘in excess of 30%’, a spectacular result by any standard. In Europe revenues rose by around 10% mainly due to acquisitions while trading profits have risen slightly.
The difference in performance between the company’s North American and European operations is a good illustration of different aspects of the building cycle. Much of Europe has already slowed while in much of North America it is still growing.
The signs of a turn in the North American market are already evident however. The company noted that new housing starts are beginning to slow from the record levels seen last year although the commercial and industrial sectors continued to grow.
The company is cautious it its outlook, warning that the American market was expected to soften further although it was expected to settle at a reasonably high level thus providing opportunity for further growth.
This is a call that investors in this stock (and many of its peers) need to make. Where exactly is the housing and construction market heading? Naturally there are opposing schools of though but while the uncertainty prevails risk averse investors should opt to wait until the direction becomes clearer.
The share trades at 1104.63p, on a prospective PE (2007 earnings) of 10.6x, within the sector range and much cheaper than when we last looked at it. The yield is 2.9%.
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