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FTSE falters on growth and Brexit worries, with Wolseley leading losers

Discussion in 'Market News' started by Lily, Jun 1, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Building materials group reports slowing revenues after good third quarter

    Leading shares are heading lower after uninspiring manufacturing data for May, worries about Brexit and a US rate rise, as well as caution ahead of the week’s US non-farm payroll figures and European Central Bank meeting.

    Heading the fallers is building materials group Wolseley, down nearly 6% to £38.09. The company has reported reasonable third quarter numbers but cautioned on the outlook. Revenues for the three months rose by 10.8% with trading profit of £230m up 12.2% and it said full year profts would be in line with analyst expectations, before restructuring costs. But it said:

    Third quarter numbers look good with trading profit of £230m ahead of our around £215m forecast and the group confirms that it is on track to deliver results in line with consensus expectations for the full year.

    However, the key focus will be on the outlook comments which state that like for like revenue growth in the weeks since the end of the quarter has been only 1%, which implies a significant slowdown in the US like for like growth performance. Consensus is likely to be broadly similar for this year but may be shaved a touch to reflect higher restructuring costs.

    Wolseley has announced strong third quarter figures with like for like sales growth of 2.8% and margins improving from 5.9% to 6.3%. However, the strength of the third quarter will not feed into improving consensus expectations for the full year because management has given lacklustre guidance for the fourth quarter, citing a slow start with like for likes slipping to +1%, and management flagging that it expects more top line restructuring costs in the fourth quarter. We see the shares as close to fair value and believe that the market may be disappointed by the slow start to the final quarter.

    A soft update with group like-for-like growth of 2.8% in the third quarter of 2016 (3 months end April) and commentary that growth in the weeks since the end of the quarter has been just 1%. Commodity price deflation remains a headache, impacting group growth by 1.4% in the third quarter. The outlook for the full year is maintained at current exchange rates. We expect the shares to come under some pressure today.

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