The Investment Column: Wolseley steers a risky course, but the shares look good value
Wednesday 29 September 1999
The shares have plummeted from their 564p high to 421.75p. Put them on the same rating as their sector peers, and this implies that Wolseley will deliver earnings one-third below forecasts. Is the market's extreme scepticism about Wolseley justified?
With 54 per cent of profits coming from the US, the company's warning of a slowdown from the high levels of growth enjoyed since 1997 indeed causes concern. To justify Wolseley's present rating, however, such a slowdown would have to see US profits halving.
The company is expanding aggressively by acquisition in America, adding 50 new sites this year. A slowdown would in fact present further opportunities to grow by acquisition.
There is also concern about continuing pricing pressure. As a distributor, this softens Wolseley's margins. Even so, underlying margins are heading upwards as bolt-on acquisitions and new sites deliver scale economies.
The group - already the world's largest distributor of plumbing and heating equipment - spent more than pounds 310m on acquisitions this year, mainly in Europe. Investor concern should focus on the difficulties here. Wolseley's foray into Austria, where the market has reversed, looks misjudged.
Organic profits growth in its European operations was 3.6 per cent, against 12 per cent in the US. Yet it is in Europe that chief executive John Young plans to replicate the successful UK business. The risk is that a rival with better knowledge of Mr Young's target markets might build up similar economies of scale.
Analysts expect pre-tax profits of pounds 355m and earnings of 41.5p per share this year, putting the shares on a price/earnings ratio of 10. Despite the risks, that's cheap given Wolseley's historic double-digit growth. The shares are good value.
- 1 Bruce Jenner's 'Interview of the year': Suicidal thoughts, rejection by family members and new wardrobe
- 2 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 3 How to turn off/stop 'seen by' on Facebook: Disable it to make your chats seem less passive aggressive
- 4 'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
- 5 Buckingham Palace guard who attacked passers-by in 'most most violent piece of CCTV footage' police officer had seen walks free
Top 20 misconceptions people believe are true
Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
Nepal earthquake: More than 1,100 killed across four countries and in Mount Everest avalanche
Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
The sickening truth about food banks that the Tories don't want you to know
Katie Hopkins on LBC: Listen to caller taking The Sun columnist to task over migrant comments
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...