With the share price of plumbers’ merchant Ferguson PLC (LON:FERG) close to its selling price, broker Numis Securities has downgraded the stock to ‘hold’.
Numis moved from ‘add’ while keeping its target price unchanged at 6,150p; the shares currently trade at 5,961p, down 122p on the day.
READ: Ferguson hikes the dividend as US industrial growth drives profit uplift
Full-year results yesterday from the company formerly known as Wolseley were largely in line with Numis’s estimates but the hike in the dividend caught the broker on the hop.
“Management has indicated a shift toward more acquisitive and organic investment in the coming year, and in our view the Ferguson business model suggests this is a low-risk strategy,” Numis said, adding that it expects any acquisitions to be of the bolt-on variety rather than transformational.
“For 2020 we assume a similar growth profile in the US to the current year (top-line out-performance by 1-2% and double-digit drop-through EBIT margin), but the expectation of rising corporate tax rate in Switzerland (where Ferguson is domiciled) could impact EPS growth; though clearly we do not forecast further acquisitions, which could provide some offset to this,” it added.
Barclays, meanwhile, stuck with its ‘overweight’ rating and 6,700p price target, saying the surprises in the results were “mostly positive”.
“The positives are the year finished strongly – Q4 trading profit was 4% above our forecast and 2% above consensus – the core dividend has been increased by 21% year on year and rebased upwards, the incongruous-looking central European business is to be sold, US$514mln of acquisitions have been completed since the end of Q3, cash generation was better than expected and conditions in the US remain positive,” the bank said.
“The negatives are organic growth has dipped a little in the weeks since the year end, tax and interest are going to be a bit higher than forecast, and there's been a US$122mln write down of the carrying value of the Swiss associate,” it continued.
The net effect is an increase in Barclays’ trading profit estimates by 1/2% in 2019/20 but its earning per share forecasts reduce by 1/3.5%.