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Shares in Heating and Plumbing supplier Ferguson top the UK Index this morning after H1 results, driven by strong US residential markets, were accompanied by welcome confirmation of a $1bn special dividend (circa 5%) to be paid with proceeds of its sale of Nordic building materials distributor Stark. Whilst the former maintains the positive corporate message that took shares to Jan’s mid-month peak, the latter boosts cash returns to a very healthy circa 7.5%, making it difficult to ignore for those hunting the combination of solid, growing UK Index businesses with attractive yields.
Nit-pickers might point to H1 organic growth of 7.4% implying a slowing to 7.3% in Q2 versus 7.6% in Q1, perhaps attributable to some minor seasonality. On the flip-side, FX benefits have risen (reports in USD, not GBP), taking ongoing revenue growth from 10% in Q1 to 10.3% in H1 (9% once FX benefits stripped out), implying acceleration to 10.6% in Q2. More importantly, growth in ongoing trading profit accelerated to +15% in H1 (14.4% ex-FX) versus 13.9% in Q1, implying something akin to 16% in Q2, and thus handsome margin expansion, even if exceptionals halved growth in pre-tax profits (7.6%).
Today’s share price reaction is thus understandable, driven by the aggregate of returns and outlook, with confirmation of that chunky special dividend ($1bn, or $4 per share, offset by a share price consolidation to avoid an ugly drop and gap on the chart), continuation of the ongoing $650m share buyback programme (50% complete; helped flatter EPS growth to 16.6%), another 10% hike for the interim dividend (same as last year) and management’s confidence in meeting broker FY consensus (despite H2 having tougher comparables; US strength/Canadian health offsetting a challenging UK).
A tidy set of results, a chunky return of capital and management in the luxurious position to be being able to talk of more positives than negatives. Shares trade close to highs of the day, with a solid break above March highs, and recently troublesome 50/100-day moving averages, to trade their best since early Feb. Long term uptrend intact, bulls looking for not just the 5% special div, but a similar 5% rally back to Jan’s best since summer 2007.
Mike van Dulken, Head of Research, 27 Mar 2018
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