Wolseley expects growth as Q1 profit jumps

Published:  08 December, 2010

LEAMINGTON SPA: Wolseley's shares lifted yesterday when it posted a 39% rise in first-quarter trading profit from growth in all regions.

Wolseley said underlying operating profit rose to £159m in the three months to end-October, with like-for-like revenue up 4% to £3.47bn.

Demand improved in most countries in its first quarter but pricing competition remained tough with no sign of a respite in 2011, it said. Gross profit edged up 2% to £938m from £916m the year before,

Shares in Wolseley, which said in September it was to redomicile in Switzerland to lower its tax rate to 28% from 34%, were up 4.3% to a 26-month high this morning. The FTSE 100 index was up 1.2%.

Residential new-build markets remain "very depressed", the company said but a focus on repair and maintenance and its industrial unit were driving growth while commercial markets were showing early signs of stabilising after a deep downturn.

As part of a restructuring announced last year, Wolseley is continuing to assess non-core assets. Three businesses, which represent 10 percent of group sales, were under review despite contributing to a "material improvement" in trading profit this year.

Operating costs were £23 million lower than last year principally due to disposals, including Brandon Hire. The company is also hoping to sell UK bathroom retailer, Bathstore, for between £70 million and £90 million. Sun European Partners, owner of Dolphin Bathrooms, is rumoured to be interested.

Ian Meakins, chief executive said: "Most markets continued to grow in the first quarter and the group's trading performance was slightly ahead of management expectations. Whilst demand has improved in most countries, pricing competition has remained intense. We continue to focus on improving customer service, growing market share, driving efficiencies and generating strong cash flow."

Analysts remain cautious: Andy Brown, at Panmure Gordon said in a note: "These look to be solid first-quarter results with improving demand patterns across the majority of its key trading regions. Pricing pressures, however, remain. Management action on costs can be seen through the improvement in the trading margin. With the shares having had a strong recent run, our stock preference remains elsewhere in the sector."

The broker's caution on Wolseley has been driven by concern on the US housing and non-residential construction recovery, as well as preferring to play the sector through other stocks.

BNP Paribas said: "As US housing and consumer data has stabilised the shares have recovered and now stand at near two-year highs, with a 2011 calendar P/E of 13.7 times. This represents a calendar 2011 premium to Travis Perkins of 32% which we see as too stretched.

"Wolseley's 30% UK growth this is clearly also positive for Travis whose margins of 8% compare hugely favourably with the 4.7% that Wolseley has just recorded for this quarter."

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