Wolseley drives into new territory with US acquisitions worth pounds 41m

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The Independent Online
WOLSELEY, the West Midlands-based plumbers and builders' merchants, was back on the acquisition trail yesterday, picking up four regional businesses in the US for $68m (pounds 41m), including the assumption of debts.

As acquisitions go they are small beer compared with the group's total turnover of pounds 5bn, nearly 60 per cent in the US. In a full year they will increase turnover in the US by $158m, which is less than 4 per cent.

But they take Wolseley into new areas in Texas, Oklahoma, New Mexico and Alabama and strengthen its competitive edge in what is still a highly fragmented market. Wolseley is already a market leader, although it has only 4 to 5 per cent of the US national market for plumbers' supplies and less than 2 per cent of the timber market.

Better still, the purchases show that it is still possible to pick up sales and market share in the US at low prices, leaving plenty of scope to increase market share further and make the distribution system even more efficient. Last August the group paid RMC pounds 121m for the Hall's chain of builders' merchants, and last month it picked up a distribution business in France. It is now well on course to maintain its recent annual spend on acquisitions of pounds 150m to pounds 200m, which is financed out of cash flow.

The growth of both turnover and profits in recent years has been steady rather than spectacular, but the manufacturing side of the business has stood up well to the impact of a strong pound, and that problem could well be getting steadily easier over the next 12 months.

On the distribution side, sales in all three main markets - the US, UK and France - are still moving ahead, and the long-anticipated recession in the US market has still not yet arrived. Only Austria, which accounts for just 5 per cent of sales, is currently suffering.

Analysts are not likely to rerate the shares on the basis of yesterday's new deals alone, but on balance they are going for a modest 3 per cent rise in profits to pounds 280m to pounds 285m and earnings of 32p to 32.5p in the current year to the end of July, rising to pounds 285m to pounds 295m and earnings of 32.5p to 33.5p in 1999/2000.

This is a relatively pedestrian rate of growth, but the shares halved in the six months from March to a low of 276p last September. They edged up just 0.75p to 363p yesterday, and at under 11 times prospective earnings, and offering a secure dividend yield of 4 per cent, they look a safe short- term hold, barring a sudden drop in confidence in the US.

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