Wolseley beats forecasts again with rise of 67%: Analysts raise estimates for next two years but shares fall, reports Tom Stevenson

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The Independent Online
Full-year results from Wolseley, the world's largest distributor of plumbing and heating products, were as usual well ahead of forecasts.

Analysts upgraded estimates for the next two years, focusing on Wolseley's perceived management strength, strong internal systems and consistent record of high returns on capital and investment.

Driven by a successful strategy of equity-financed acquisitions, the owner of more than 1,100 specialist builders' merchants in the US and Europe yesterday reported pre-tax profits of pounds 202.3m for the year to July, a 67 per cent increase on 1993's pounds 121.1m.

Organic growth was also strong, with a 34 per cent rise in profits from existing businesses and sales 11 per cent higher.

Earnings per share, which have compounded at almost 14 per cent a year for the past 30 years, were 51 per cent higher at 50.8p and the dividend, three times covered by earnings, grew 26 per cent to 16.7p (13.3p).

Despite the sparkling figures, Jeremy Lancaster, chairman and managing director, was characteristically pessimistic about the markets in which Wolseley operates and the shares slipped 8p to 725p.

In line with the rest of the building sector, they have fallen from a high of 975p in March as the market worried about rising interest rates in Britain and the US and a disappointing housing market recovery.

Mr Lancaster said tax increases in April and a general lack of security for homeowners had reduced sales growth in the second half of the year for the British chain of Plumb Centers.

Repair and maintenance, which accounts for two-thirds of European building distribution sales, had been particularly disappointing.

In France, where Wolseley bought Brossette, a chain of 200 merchants, in February 1992, sales increased by 6 per cent despite a flat housing and construction market.

Brossette was the first of a string of acquisitions over the past two years, costing almost pounds 300m and all financed by share placings, which have taken advantage of Wolseley's traditionally high rating.

One of those, Erb Lumber, took Wolseley further into the US timber distribution market, which accounted for 40 per cent of the division's pounds 87m trading profit, up from pounds 47m in 1993.

Operating margins moved ahead from 3.9 per cent to 5.1 per cent as plumbing profits also rose sharply.

SG Warburg is now looking for pre-tax profits to next July of pounds 245m, implying a prospective p/e ratio for 1995 of 11.3, a discount to the sector average of 12.1. A planned one-for-one scrip issue should improve the shares' marketability.

The prospective dividend yield is 3.3 per cent.

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