Building materials distributer Ferguson (FERG) strong results for the first half of 2018 help put it at the top of the FTSE 100 leaderboard on Tuesday. Its share price is up 5.5% to £54.14 as the company proposes a $1bn special dividend.
The proposed dividend equates to $4 per share, with the total amount around 7.5% of the Ferguson’s market capitalisation. The company is also continuing its share buyback programme. Ferguson previously announced a £500m share buyback which it has now completed half of, with the remainder to follow.
The special dividend is largely being funded by the disposal of Ferguson’s Nordics business, with the cash expected to be ready by the end of March.
US POWERING GROWTH
Having changed its name from Wolseley to Ferguson last year to reflect the dominance of its US division (which carried the latter’s name) you’d expect a strong performance in the States. Ferguson hasn’t disappointed.
US organic growth hit 8.7% with profits reaching $647m, slightly ahead of broker Canaccord Genuity’s forecasts.
Bank of America Merrill Lynch (BoAML) analyst Arnaud Lehmann says that the company’s ‘impressive’ second quarter US performance should drive consensus upgrades of around 2% for trading profits in line with his own forecasts.
Other analysts have already revised their 2018 trading profit forecast upwards, with Paul Checketts, analyst at Investment bank Barclays, adding 3% to $1.46bn. The market had pencilled in $1.44bn.
Barclays has also increased its earnings forecast for 2018 and 2019 by 4% and 9% respectively. It now predicts $4.3069 earnings per share for 2018 and $5.1557 for 2019.
While its US business is going great guns, the UK has not performed as well with profits down 19% to $38m. Organic growth was in negative territory in the second quarter but as it makes the vast majority of its money in the US this is not a big concern for the market.
CURRENCY HEADWIND
One potential headwind is the weakness of the dollar against the pound which could impact valuation. BoAML’s Lehmann has revised down his target price to £62 from £65 to reflect ‘the mechanical impact of the stronger pound to the dollar’ although reiterates his ‘buy’ rating.
Ferguson is trading on 18.2 times Lehmann’s $4.20 forecast 2018 earnings with a prospective 2.2% dividend yield.
