Brokers rate Travis over Wolseley

Published:  30 March, 2011

LONDON: Despite Wolseley's return to profit in the first half of 2011, following a loss in the same period a year earlier analysts are cautious about prospects.

Charlie Campbell at Liberum Capital said: "Wolseley's H1 results came in a long way ahead of our estimates as sales accelerated in Q2 and the margin momentum continued. We see the surprising rise in the dividend as a sign of the company's confidence in continuing to grow through self-help and the emerging strength of its balance sheet."

Andy Brown at Panmure Gordon: said: "While many of its markets have stabilised, conditions remain tough, although the group expects to make further progress during H2. We have a cautious stance on Wolseley due to ongoing uncertainty surrounding its US markets. This is clearly the swing factor, as many investors are positive on the company for the potential recovery in North America."

Keith Bowman at Hargreaves Lansdown said: "The shares remain a geared play on economic recovery, particularly in the US, with management confidence for growth in the second half underlined by a resumption of the dividend payment. As such, while the shares continue to climb a 'wall of worry', market consensus opinion currently denotes a strong hold, held back for now by valuation concerns."

Caroline de La Soujeole at Seymour Pierce said Wolseley's results are in line with the broker's expectations. "Given the lacklustre outlook for construction activity and weak consumer confidence, there are insufficient grounds for further optimism. We remain sellers with a 1,700p target price based on a through the cycle P/E of c.15x. In this segment of the support services sector, we prefer Travis Perkins."

Analyst Tony Shepard at Charles Stanley rated the stock 'accumulate', saying: "The share price has performed strongly over the last 12 months, up some 30% and the prospective PE is 16x for the year to July 2011."

"Nevertheless, Wolseley has plenty of recovery potential in terms of both earnings and for further deleveraging of the balance sheet."

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