The construction recession catches up with Wolseley


Jeremy Lancaster, who steps down as chairman of Wolseley in July, has produced stunning returns in his 22 years at the helm. Since taking over as managing director in 1973, he has overseen a 141 per cent outperformance by the shares against the rest of the stock market.

But having become the world's biggest plumbing supplies merchant and a substantial player in heavier builders' requirements like timber, it was hardly surprising that the construction recession would catch up with Wolseley. The group warned in October that the profits train would hit the buffers this year.

Yesterday it confirmed that business conditions had measured up to worst expectations, while revealing that the Ashley & Rock electrical manufacturing group had been forced to take substantial rationalisation costs to counter cheaper Asian competitors. Combined with the announcement of a 5.4 per cent dip to pounds 111m in half-time profits to January, the news sent the shares 10.5p lower to 466.5p yesterday.

The market's reaction is a little churlish given that some of the problems are unlikely to repeat themselves. Wolseley has acted promptly to address the difficulties facing Ashley, which accounted for the lion's share of an pounds 8.37m underlying fall to pounds 17.9m in profits from manufacturing and other activities.

Meanwhile, Wolseley's other dud related to the cooling of the overheated housing market near Raleigh in North Carolina. Stripping out acquisitions and exchange movements, that represented the bulk of the pounds 6.51m underlying drop at the US building distribution operations to pounds 46.6m.

Analysts were duly cutting forecasts for this year to around pounds 237m yesterday, putting the shares on a forward multiple of 16. What really matters now is next year and here Wolseley is relatively optimistic. The UK housing market is showing signs of life and the US would be boosted by interest rate cuts.

There remains plenty to go for in the plumbing market in the UK and Wolseley has shown a sure touch in its acquisitions. Hold.

Williams needs

long-term view

The view you take of Williams depends on your time horizon. In the long run, a growing exposure to developing markets in basic businesses such as fire protection, security and building products must be attractive. Shorter term, however, it is difficult to get too excited about similar operations slugging it out in Europe and the US.

Full-year figures for the 12 months to December confirmed the difficulties facing Williams and the skill with which it is managing them. Selling paint, sealants, fillers and the like has been an uphill struggle so it is unfortunate that building products is far and away Williams's biggest division. Better demand from the aerospace industry helped fire protection, but locks and alarms also suffered from the moribund housing market. Against that backdrop, cash flow in excess of operating profits and a return on sales of 15 per cent was an impressive performance.

Aggregate profits, including a useful pounds 9m from the flotation of Cortworth, emerged at pounds 228.3m, a 14 per cent rise. Stripping out the one-off gain, earnings per share rose 2.3 per cent to 22.3p while the dividend increased by 5.6 per cent to 14.25p.

The short-term problem from an investment perspective is that Williams is already very well run. In the long run, however, investors have rarely regretted backing the excellent management of dominant brands, buying top-quality shares and tucking them away.

On the basis of forecast profits of pounds 240m this year, the shares, down 6p to 325p, stand on a prospective price/earnings ratio of 14. Expect short-term dullness but long-term outperformance.

Little room for error at TI

As usual no disappointments from TI, the aerospace to car components company. Pre-tax profits up 21 per cent to pounds 184.8m were at the top of the range, struck from sales up pounds 300m to pounds 1.7bn, with all three core businesses - John Crane, Bundy and Dowty Aerospace - showing strong organic growth.

A slowdown in European and American automotive sales is a prominent cloud, with growth in both key markets expected to remain flat this year. But the future for TI's aerospace and landing gear business looks far more promising.

Airlines are returning to profit and that is already translating into aircraft orders. Some 40 per cent of landing gear sales from TI's Messier- Dowty joint venture go to Airbus, and the division is also supplying Boeing's new 777. The Boeing business should also be a stepping stone to orders from other US airframe manufacturers.

That helped Dowty's sales top pounds 440m, up from pounds 299m in 1994, including for the first time the group's share of the sales from Messier-Dowty. Operating profits soared to pounds 36.5m from pounds 6.3m.

John Crane, which includes polymer engineering, made operating profits of pounds 84.6m, up from pounds 72.2m, on sales up from pounds 491m to pounds 546m. Car and industrial component maker Bundy's operating profits rose from pounds 58.4m to pounds 73.5m, on sales up from pounds 630m to pounds 718m, benefiting from the US car makers' new model programmes.

Analysts have upgraded this year's forecasts to between pounds 201m and pounds 225m, putting the shares on a prospective price/earnings ratio of about 16. TI has a string of quality businesses and a strong order book but, at 486p, up 6p yesterday, there is little room for error. About right.

people'It can last and it's terrifying'
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
footballStriker has moved on loan for the remainder of the season
footballFeaturing Bart Simpson
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
Arts and Entertainment
Olivia Colman topped the list of the 30 most influential females in broadcasting
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
ebooksAn unforgettable anthology of contemporary reportage
news Video - hailed as 'most original' since Benedict Cumberbatch's
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering