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Ferguson quickly U-turns on dividend and share buyback due to coronavirus impact

The plumbing and heating group has also shelved plans for a potential Wall Street listing

Ferguson PLC -

Ferguson PLC (LON:FERG) has decided to shelve the interim dividend it declared last month and the share buyback launched the month before, until the effects of the coronavirus pandemic become clearer.  

Although most of the branches of the plumbing and heating products supplier remain open in the US, management said trading was “mixed” and they were preparing for the lower activity levels seen in regions worst-hit by the virus outbreak, such as New York, to spread.

US revenues, which make up 85% of the FTSE 100 group’s total, grew 8.2% in the two months to 31 March, though growth was said to have weakened towards the end of the period.

In the UK and Canada, branches are only open where essential services are being provided, with the UK described as “extremely challenging” due to the lockdown, with revenues down 10.5% in the past two months, and Canada down 7.7%.

Having withdrawn guidance for the rest of the year at the time of the interim results last month, the group said it was reducing costs with a hiring freeze, a reduction in overtime and use of temporary staff, as well as laying-off staff in worst-hit regions.

The US$500mln share buy-back announced in early February, of which a fifth has so far been spent, has been halted and the interim dividend of 67.5 US cents, which the board had confidently hiked 7% on 17 March, has been withdrawn.  

“While the balance sheet remains strong, the board believes this is currently in the company’s immediate best interests, balancing all our stakeholders' interests against a background of significant uncertainty as to the impact and duration of the current Covid-19 disruption,” the group said, promising to review this decision later in the financial year.

Net debt at 31 March was US$1.9bn excluding leases, with an equal ratio to the past 12 months adjusted EBITDA, while there was around US$2.5bn of available liquidity, including readily available cash of circa US$0.7bn and $1.8bn of undrawn facilities.

Wall Street two-step

Ferguson has put plans for a full listing on Wall Street on the shelf for now after consultation with institutional shareholders and will instead seek approval for a secondary listing of some shares in the US in the first half of 2021.

A two-step process to transition to a full listing is still planned, with a proposal to move to a primary US listing within 12 months of the secondary listing.

The shares were little moved on Wednesday morning at 5,200p, having lost a quarter of their value since the start of the year.

Ferguson's update “reflects a potentially concerning trend at the top end of the UK market”, said Russ Mould, investment director at AJ Bell, noting the departure from the FTSE 100 of several notable constituents in recent years.

“Ferguson’s proposal for a potential phased shift in its primary listing to the US, previously it had planned to do this immediately, could still eventually deprive London of another leading player in its field.

“There is logic to this decision with the demerger of its UK business [...] but this will be of limited comfort to institutions whose mandates won’t allow them to invest in the shares if they are primarily traded in the US.”

He said Ferguson has followed the corporate playbook to the letter when updating the market in the current crisis: “Explain how they are protecting customers and staff, update on trading, withdraw guidance, cancel or defer any distributions to shareholders and outline the balance sheet position (painting it in as favourable a light as possible).”

    --Adds detail, share price and broker comment--

Quick facts: Ferguson PLC

Price: 8324 GBX

LSE:FERG
Market: LSE
Market Cap: £18.72 billion
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