In light of macro and leading indicators, we believe that the industrial investment theme now represents a risk for the sector. Through its exposure to the construction market, mainly in North America, where the recovery is underway, Wolseley avoids this risk. The group is completely deleveraged and has firepower equivalent to 15-25% of its market cap for acquisitions and/or return to shareholders.
Wolseley this morning published annual results in line with expectations. The group is continuing with its margin accretion strategy by selling off underperforming businesses. Cash generation is high and sustainable, and the company now has no debt. The dividend has increased by one third, and an exceptional dividend has been announced, giving a foretaste of the group’s future profile. Although the outlook is cautious, we believe that the group’s earnings are more robust than the sector average. PLUS rating confirmed.
This morning, Wolseley posted half-yearly results in line or even slightly ahead of expectations. The gradual recovery in North America is being confirmed but the situation remains difficult in Europe. The 2012 outlook is cautious. The group is continuing to implement its strategy and reducing its debt. The interim dividend is one-third higher. PLUS code confirmed.
In our view, industrial investment by China presents a risk to the sector today. Wolseley is not vulnerable to this risk because of its exposure to the construction market, essentially in the USA and UK, where a slow recovery has started. We see potential for the profits to be revised upwards as compared to the average downward profit revision potential for the sector as a whole. Although Wolseley is entirely debt-free, it is still trading in line with the sector.