Wolseley's world markets slip

Published:  06 July, 2010

READING: Wolseley has maintained a relatively upbeat stance in recent months, issuing two positive trading statements amid signs that house building and construction markets are starting to improve. However the modest bounce back from last year's depressed levels may already be running out of steam.

Revenue from the US, the group's largest business, fell 10% in the third quarter of the year to 30 April, and conditions there have deteriorated since. Wolseley's next three biggest markets, UK, France and the Nordic region, are suffering from a squeeze in consumer spending, higher taxes and rising unemployment.

Brokers, Shore Capital said "We have downgraded Wolseley from a buy in the face of uncertainty over the prospects for an early economic recovery. Indeed, US markets are already showing signs of falling after a modest recovery while, in Canada, deteriorating conditions have prompted the Canadian Real Estate Association to lower forecasts for housing sales this year. Wolseley derives 5% of group turnover from Canada. And, while the dividend is likely to be reinstated, don't expect that in the current year. Expect 2010 pre-tax profits of £285m and EPS of 66.5p.

Morgan Stanley said Wolseley "has positioned itself well to benefit from a sustained recovery - whenever that materialises".

"In fact, Wolseley is sitting on spare capacity so that any sales improvement will result in better margins. There remains an element of uncertainty however, especially as a result of the withdrawal of tax credits in the US and measures in the UK to cut public spending. But Wolseley can benefit from even modest levels of organic growth - around 5% growth in 2011 would result in EPS growth of over 50% as margins improve and leverage falls. Expect EPS of 71.1p for 2010."

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