Shares in Wolseley (WOS) are leaking most on the UK Index this morning, trading back around their August lows as investors fail to warm to the plumbing & heating supplier’s FY16 results. Headline financials below City expectations is never a good start to the annual update, even if your largest geography (the US) is performing well. Not when the general outlook is challenging, demand across markets remains mixed and volumes in the UK are weak.

Failure to return excess cash for the first year in four (£300-350m special dividend 2013-14; £300 share buyback 2015) is, however, likely the real culprit for investor displeasure. It only makes matters worse for shareholders struggling in an environment of low returns, where all income counts. An effective yield cut (the cash dividend has been upped by +10%, but can’t offset the loss of the big annual capital return) is an understandable reaction to an unwelcome surprise. However, in the context of a 3yr UK plumbing & heating restructuring programme it should perhaps been taken as a necessary evil; short-term pain (perhaps even a lesson in complacency) helping ensure long-term gains.

Note that the shares had been hinting at topping out yesterday following Summer gains of 25% and a 37% rise from Feb lows. This was all those in profit needed to hear to cash out.

Mike van Dulken, Head of Research, 27 Sept