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.
World's most lethal spider found under a bunch of bananas
Rumours that the star wants to move on to pastures new
TV presenter Fiona Bruce seemed a bit startled by the find during the filming of Antiques Roadshow
Comedian says he 'never laughed as hard as I have writing with Rik'
- 1 Sick elderly man makes 'complete turnaround' after emotional reunion with dog
- 2 Star Wars memorabilia dubbed 'bit of plastic' by Antiques Roadshow's Fiona Bruce valued at £50,000
- 3 Isis fighters 'crucify' 17-year-old boy in Syria
- 4 Ebola cruise ship ‘in utter panic’ as Mexico and Belize refuse to let it dock
- 5 Death of northern white rhino leaves just six of endangered animals left in the world
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Sorry Judy Finnigan – Ched Evans is no less sickening than an alleyway rapist
Residents should throw a street party and mix with immigrant neighbours, councils told
Workers 'could be forced to pay £5 a week' to get benefits
Russell Brand threatened with arrest after filming outside Fox News headquarters
Amal Alamuddin calls for the return of the Elgin Marbles from Britain: 'Injustice has persisted for too long'
iJobs Money & Business
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...
£50000 - £55000 per annum + bonus + benefits: Ashdown Group: IT Relationship M...
Highly Attractive Salary : Austen Lloyd: NOTTINGHAM - BRILLIANT FIRM - You wil...