Report
Denise Molina
EUR 850.00 For Business Accounts Only

Morningstar | FERG Updated Star Rating from 26 Mar 2019

No-moat Ferguson announced first-half results that were relatively strong but surprised the market by lowering guidance for the full year. We had been forecasting a slowdown this year and are maintaining our forecasts and GBX 4,500 and $5.90 fair value estimates for the local and ADR shares, respectively. The shares look richly valued.

New guidance for the full year implies a second-half slowdown in organic revenue growth to between negative 0.5% and positive 3.5% from 6.5% in the first half. Organic growth had been running in the mid- to high single digits in the last couple of years, so a slowdown is not surprising, given Ferguson's dependence on the U.S. construction market. The company saw a moderation of demand in the United States toward the end of the second quarter, which ended Jan. 31.

First-half profit margin of 7% was up 48 basis points year over year, driven by an improving gross margin. Profit guidance for the full year was towards the lower end of consensus, implying at the midpoint of revenue guidance the preservation of year-over-year margin improvements of roughly 20 basis points. The company has reduced some of its workforce, namely its U.S. branch sales associates. Labor represents 60% of the company's cost, and we expect the company to continue to use this lever to control costs in a downturn.
Underlying
Ferguson Plc

Ferguson is a holding company. Through its subsidiaries, Co. is a distributor of plumbing and heating products in the U.S. Co. operates nationally serving the residential, commercial, civil and industrial markets. Co. operates seven business units in the U.S.: Blended Branches, which provides plumbing and heating solutions ; Waterworks standalone, which distributes pipe, valves and fittings, hydrants, meters and related water management products; B2C e-commerce, which sells directly to consumers via websites using the product range and distribution network of the Blended Branches business; as well as Other, which comprises industrial standalone, fire and fabrication, and facilities supply.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Denise Molina

Other Reports on these Companies
Other Reports from Morningstar

ResearchPool Subscriptions

Get the most out of your insights

Get in touch