Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Ferguson. We currently have 34 research reports from 4 professional analysts.
In Q2, Ferguson saw a sequential moderation in organic revenue growth, in both the US and Canada. Despite this, management protected the profitability, on the back of cost-cutting actions. However, amidst the COVID-19 outbreak, it does not expect to meet the full-year guidance (moderate top-line growth and slight improvement in profitability).
Ferguson performed satisfactorily in Q1 FY19/20, with moderate top-line growth and a flat trading margin. The full-year outlook has also been reiterated by management. In terms of business restructuring, while the demerger of the UK business remains on-track to be completed in 2020, the board is unlikely to conclude on Ferguson group’s new listing structure this year – the outcome will be a key share price trigger, in our view.
Ferguson ended FY18/19 on a strong note – though the top-line performance was mediocre, margin resilience impressed the investors. In the softening US housing / construction market, management should be able to keep expenses in check, in turn aiding the bottom-line. Moreover, the Board has commenced a review of various options to get Ferguson listed in the US. Further clarity / development in this direction should support the share price, in our view.
Due to a change in Analyst role, Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
Companies: BDEV BWY BKG VTY COST CRST BBY FERG GLE KLR KIE MSLH MER MTO NXR PSN RDW RNWH SFR SHI MGNS TW/ CTO TEF TPK GFRD
Ferguson’s Q3 organic revenue growth was softer than market expectations. While management has reassured it can achieve its FY18/19 operating profit target (thanks to margin improvement), it seems investors are struggling to digest that Ferguson is moving back to a low-growth environment, amidst the expected subdued US residential and commercial construction activity. We will maintain our cautious view on the stock.
While Ferguson sustained the strong top-line growth momentum in H1, management expects a moderation in H2, due to challenging market conditions, especially in the US – the key reason behind yesterday’s downfall in the share price, in our view. Even Canada and the UK are expected to remain soft in the near term. We will revise our estimates downwards. Our stock recommendation might change to ‘Reduce’.
Q1 FY19 results were below our estimates. The US continues to grow strongly, with add-on support from Canada. Even though the UK has re-entered into positive territory, led by higher price inflation, volumes continue to decline. Moving forward, we turn conservative on the US, taking a cue from leading indicators like the LIRA and the Architecture Billing Index. In the UK, we maintain our cautious view resulting from Brexit-led macro-economic uncertainties. We have revised our estimates downward. No change in the stock recommendation.
The company reported its FY 17/18 results, which were broadly in line with our estimates. The overall theme remained largely unchanged with the US continuing to out-perform, Canada and Central Europe being in the supportive role and the UK’s unremitting under-performance. Moving forward, we expect the pace of growth to slow down given the higher interest rate environment in the US and the intensifying industry competition. We have tweaked our estimates slightly. No change in the stock recommendation.
Ferguson continues to ride the robust growth momentum in its US business, gaining additional support from the Canadian and Central European operations, which was partially offset by the sluggish performance in the UK. Moving forward, we expect the US to gain further strength, whereas Canada and Central Europe should stick to its supporting role and the UK remain as the pain point. We have tweaked our estimates slightly upward. No change in the stock recommendation.
Ferguson reported upbeat Q2 results which were ahead of our estimates. The company principally benefited from the robust performance in the US and Canada & Central Europe, whereas the UK continued to lag. Recently, the company completed the disposal of its Nordics business and decided to transfer the wealth to its shareholders via special dividends. We remain optimistic on the US growth story and share management’s pessimistic view on the UK.
The US region remained strong, while the UK continued to be a laggard. The disposal of the Nordic business should allow management to divert its energy and resources towards the US (most profitable geography) and the UK (ongoing turnaround plan). While we remain positive on the US, our conservative view on the UK business is backed by intensified competition and Brexit-induced macro-economic uncertainty (both translating into Ferguson’s inability to fully pass on the increased cost). No change to our stock recommendation.
Ferguson reported FY16/17 results (ended 31 July 2017) ahead of our estimates. Lfl revenue increased 6.0% (Q4: +8.1%, Q3: +7.1%; vs our estimate: +4.3%), largely due to a strong performance in the US and Canada & Central Europe. Robust consumer demand in the US residential and commercial segments resulted in market share gains in the region (7.1% lfl growth vs our estimate: +5.5%; contributed c.80% to the group’s revenue). Canada & Central Europe also witnessed improved trading conditions and price inflation, ensuing 3.6% lfl growth during the period (vs our estimate: +1.0%; contributed c.7% to the group’s revenue). Despite sluggish RMI activity and a competitive heating market, the UK was up +1.0% (contributed c.13% to the group’s revenue), largely driven by 2.2% price inflation in the year. The reported revenue advanced 22.5% yoy, underpinned by the scope impact (+2.1% yoy) and FX tailwinds (+13.9% yoy; due to aa weak pound vs the dollar and the euro). The 40bp gross margin improvement (led by a better product mix and procurement process) was partially offset by higher operating expenses. The underlying operating margin (from continuing operations) advanced by 10bp to 6.6% during the year (we have considered amortisation of the acquired intangibles as an operating expense). During the year, the company spent £292m to acquire 11 businesses (nine in the US and two in Canada & Central Europe; 9.1x EV/EBIT multiple) and disposed of six businesses (including Tobler in Switzerland) for a consideration of £408m. Management announced a final dividend of 73.33p per share (taking the full-year total to 110p; +10% yoy). It has also launched a share buy-back programme worth £500m (spanning across next year). Going forward, Ferguson will report results in US dollars (vs sterling currently) and replace the lfl sales growth format with organic revenue (which also includes the impact of net branch openings).
Wolseley reported H1 FY16/17 results (ending 31 January 2017) ahead of our estimates and market consensus. Organic revenue increased by 3.2% (Q2: +4.8%, Q1: +1.8%; our estimate: +2.2%), largely driven by a good performance in the US – strong residential/commercial activity and a gradual improvement in the industrial market – (Q2: +6.7%, Q1: +4.2%; our estimate: +4.5%; c.68% of group revenue). The UK business also returned to positive territory (Q2: +3.6%, Q1: -2.9%; our estimate: -2.0%; c.12% of group revenue), reflecting the benefits of the ongoing transformation plan. However, the Nordic region declined by 2.3% (Q2: -1.5%, Q1: -2.9%; our estimate: -3.0%; c.12% of group revenue) due to challenging market conditions, especially in Denmark and Sweden. In Canada and Central Europe, revenue was down 1.4% (Q2: +0.3%, Q1: -2.7%; our estimate: -1.2%; c.8% of group revenue), as growth in the Netherlands was offset by a revenue decline in Canada and Switzerland. Reported revenue increased by 24.5%, on the back of strong currency tailwinds (+17.8% yoy; depreciation of the GBP vs the USD) and positive scope impact (+3.5% yoy). The gross margin improved by 30bp yoy (due to a better customer mix and high margin private label products), but the gains were offset by higher operating costs during the period, largely due to investment in MRO capability, B2C branding and technology enhancement, leading to flat growth in the trading margin at 6.1% (vs our estimate: 6.4%). The company acquired eight businesses in H1 FY16/17 for £271m (six in the US and two in Nordic region; EV/Revenue: c.1.3x). Also, in February 2017, Wolseley announced the merger of its Swiss plumbing & heating business ‘Tobler’ (FY16 revenue and trading profit of £235m and £15m, respectively) with Walter Meier AG for a cash consideration of CHF117.8m and a 39.2% minority stake in the combined business. The following announcements were also made during the H1 results: 1) management has completed the Nordics’ business review and initiated a process to exit the region, 2) Wolseley will change the trading name to Ferguson Plc (in line with its US subsidiary, which contributes c.80% of group trading profit), however, the UK and Canada business will continue to operate under the Wolseley brand name, and 3) the reporting currency will be changed to the USD from 1 August 2017 (currently GBP), in order to mitigate FX volatility and maintain reporting transparency.
Building materials specialist received huge currency boost on US sales following Brexit
Wolseley reported Q1 FY16/17 results in line with our estimates as well as market consensus (organic revenue growth slightly missed but the trading profit was in line). The lfl revenue increased by +1.8% (vs Q4 FY15/16: +1.5%, Q3 FY15/16: +2.8%; our estimate: +2.3%), once again driven by strong consumer demand in the US residential and commercial markets (c.50% of group revenue). However, ongoing weakness in the US industrial business (c.12% of group revenue) and commodity price deflation (-2.4% yoy) capped the region’s organic growth at 4.2% (vs Q4 FY15/16: +3.1%, Q3 FY15/16: +5.0%; our estimate: +4.5%; c.68% of group revenue). In the UK, uncertain macro-economic conditions and a sluggish heating market once again pinned down organic growth (-2.9% vs Q4 FY15/16: -2.1%, Q3 FY15/16: -0.4%; our estimate: -2.0%; c.11% of group revenue). The Nordic region also continued to sail in the red zone (Q1 FY16/17: -2.9%, Q4 FY15/16: -2.3%, Q3 FY15/16: -2.6%; our estimate: -3.0%; c.13% of group revenue), on the back of the construction market slowdown, particularly in Denmark (c.45% of the regional revenue). Moreover, Canada & Central Europe witnessed a 2.7% decline on an organic basis (vs Q4 FY15/16: +0.3%, Q3 FY15/16: flat; our estimate: flat; c.8% of group revenue), largely due to weak industrial demand from Alberta and Switzerland. Total reported revenue increased by 22.9% (vs Q4 FY15/16: 11.4%, Q3 FY15/16: +10.8%; our estimate: +9.8%), on the back of FX tailwinds (+17.7% yoy; weaker GBP vs USD and EUR) and positive scope impact (+3.4%). THe gross margin improved by 30bp during the quarter due to a better price mix and improved negotiations with vendors). However, the trading profit margin declined by 10bp due to higher operating costs in the US (+10.9% yoy). The company completed five bolt-on acquisitions for £216m (EV/sales: 1.5x, EV/trading profit: 9.4x) and expects the full-year investment to be in the range £300-400m.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Ferguson. We currently have 34 research reports from 4 professional analysts.
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RA's core business activity is the provision of remote site and mission critical life support services in many challenging locations around the world, often in very difficult circumstances. RA remains well placed to continue to operate successfully during this Covid-19 uncertainty though in recent days it has become clear that some customer projects will be delayed. With the timing of delivery of some contracts in 2020 uncertain we are temporarily withdrawing our 2020 forecast. With its rapid deployment capability, RA has coped well with contract delays before. Recent FY19 guidance has indicated revenue ahead of expectations, demonstrating a significant delivery of revenue during H2/19 vs H1/19. We remain Buyers given RA's demonstrably strong balance sheet, NGO, governmental and global corporation client base. Given its operating capabilities with long-term supply chain planning, we anticipate RA should quickly return to normal operating levels once the Covid-19 spread and resultant restrictions subside.
Companies: RA International
Today’s year end update highlights that FY20 trading was broadly in line with expectations. The Group has experienced a reduction in demand over the last week as a result of the implementation of more stringent lock down measures. In response, management has postponed all non-essential work, furloughed staff, and deferred 20% of the pay of employees who have not been furloughed, including management. These actions have materially reduced the monthly overhead. The update also confirms receipt of £16.8m of proceeds for the asset disposal, leaving the Group with a cash balance of £5.6m (pre-IFRS16) and no debt. We believe the Group is very well positioned to navigate the impact of COVID-19 and well placed to benefit from a more positive medium term outlook as the market backdrop improves.
Companies: Fulcrum Utility Services
Flowtech has released an update post its Q1 detailing the impact from COVID-19 and the actions the Board has taken. Trading over the first three months of FY20 was in line with guidance provided in the February update. However, the impact of COVID-19 in the final few weeks indicate that trading in the early part of Q2 will be impacted. Currently revenue is 30% below expectations with the potential for a further deterioration. The statement indicates that the business is relatively resilient and that a sustained 35% fall in revenue would leave the business breakeven, on the assumption that Government support in the UK, Netherlands and the Republic of Ireland is utilised. Balance sheet liquidity is c. £9.4m on £25.0m facilities recently extended to June 2021. In addition, and in line with what many companies have announced, the final dividend for FY19, ZC estimate 4.3p, will be suspended to conserve cash. We leave forecasts in FY20 and FY21 unchanged for the time being, until there is greater clarity on trading.
Companies: Flowtech Fluidpower
The Indian Government and Reserve Bank of India has announced several relief packages to combat the adverse impacts of COVID-19 and the lockdown implemented last week. The lockdown encompasses all non-essential industries and has resulted in OPG's industrial customer shutting down operations and reducing their short-term demand levels. As a result of the current market uncertainty, we are withdrawing our forecasts from the market and move our recommendation to Under Review until macroeconomic conditions stabilise. We believe OPG's strong portfolio of customers from diverse industries will enable it to quickly revert to normal operating levels once the situation improves.
Companies: OPG Power Ventures
Marlowe has confirmed that trading for FY20E was in-line with market expectations. Whilst COVID-19 has meant that the company has been unable to enter certain sites, Marlowe expects this to largely be recovered once normal site access resumes, given the regulatory-driven nature of activities undertaken. The disposal of non-core assets is offset by EBITDA from recent bolt-ons. We reiterate our Buy recommendation.
Companies: AVO AGY ARBB ARIX BUR CMH CLIG DNL GDR HAYD PCA PIN PHP RE/ RECI RMDL STX SHED VTA
XP Power’s Q1 trading update confirmed that revenues increased 4% y o y/q o q and the Chinese facility has returned to normal staffing levels. Strong demand, mainly from healthcare customers, saw a 25% q o q increase in orders and a Q1 book-to-bill of 1.49x. Despite strong Q1 demand, the level of uncertainty surrounding both supply and demand for the rest of the year has caused XP to cancel its previously proposed Q419 dividend in order to preserve cash. We maintain our revenue forecasts, but factor in higher costs in FY20 and remove our Q419 and Q120 dividend estimates.
Companies: XP Power
Sites at Kier were paused for a day, but 80% have re-opened. The government is the key customer and is supportive.
Companies: Kier Group
The developing coronavirus pandemic has affected year-end trading for Norcros, with an indicated c £4m impact on EBIT. Operational shutdowns mirroring those of its customers have been undertaken and, as elsewhere, actions to preserve cash are being taken. The company has up to c £110m headroom under existing banking facilities representing a strong year end liquidity position. Forward guidance and our estimates for FY21 onwards have been withdrawn pending greater clarity on the scale and duration of the lockdown conditions being widely enacted currently.
SThree reported an in-line Q1 (to Feb) just three weeks ago. A lot has changed since then and, given the impact of COVID-19, the company is withdrawing its earnings guidance. We cut FY20E EBIT by 57%, assuming a more protracted impact than previously. With various measures in place to enhance liquidity (including cancelling the FY19 final dividend), we expect the balance sheet to remain net cash in FY20E, even in a worse case scenario. The longer-term investment thesis is unchanged. SThree’s differentiated STEM/contract focus exposes it to secular growth trends. CY20E EV/EBIT 14.4x. TP cut from 400p to 270p. Maintain Buy.
Companies: SThree Plc
Xpediator has issued a COVID-19 related trading update. The key messages are reassuring: the business has a strong balance sheet and is asset light, trading is in line with internal budgets and the group has begun to see activity returning from its Chinese customers following an understandably difficult January and February. Some businesses are performing ahead of expectations, but where the reverse is true, early action is being taken on costs.
Anexo’s trading update confirms that FY 2019E adjusted PBT will be in line with market expectations but that forward guidance is withdrawn given the current uncertainty over COVID-19 – although trading so far in FY-2020 looks relatively unaffected. Accordingly, we make no changes to our FY 2019E numbers and withdraw those for future years until the outlook is clearer. The timing of the FY 2019E results announcement will be confirmed in due course. Like others, Anexo is taking measures to preserve cash. Crucially, it continues to operate as an essential business under the current government restrictions. Staff are following the appropriate guidelines while providing a service to many key workers. Obviously, there is uncertainty over the long term impact of COVID-19 and therefore the focus on collections remains vital. In our view, the group remains in a strong position to drive cash out of its backlog of cases without necessarily committing further new working capital.