Business World

Tuesday 10 December 2019

Share watch: A shining star that would have impressed Einstein

'While Wolseley is a UK-quoted company the bulk of its business and profits come from the US... This will give it a shield from any Brexit problems' (stock photo)
'While Wolseley is a UK-quoted company the bulk of its business and profits come from the US... This will give it a shield from any Brexit problems' (stock photo)

John Lynch

Who said this? "If I were a young man again and had to decide how to make my living, I would not try to become a scientist or a scholar, I would rather choose to be a plumber."

What brilliant mind reckoned that plumbing afforded most independence in the modern world?

I won't ask (this time) for replies written on the back of a €20 note. I'll tell you.

It was the redoubtable physicist and Nobel prize-winner, Albert Einstein, and if he did not know a 'good earner', who would?

If it was possible to ask the great German thinker, what's as good as being a plumber, he'd surely say, owning a specialist plumbing supply company like the one we are analysing today, the British company, Wolseley.

Einstein, wise man that he was, however would not be worrying about how Wolseley is going to handle the Brexit challenge.

The company distributes bathroom products, heating and plumbing supplies, valves, waste water systems and fittings to customers in the UK, Europe and USA.

It also distributes building material and timber products and operates tool-hire centres. At the moment it has a market capitalisation of £12.6bn.

Wolseley has a chequered past, once being a sheep-shearing machinery producer in Australia and once being part of the mighty Vickers corporation.

However, it found its niche in the 1960s when it discovered the charms of heating and plumbing.

Today, the company is one of the world's largest heating and plumbing concerns, with 2,700 locations and 39,000 employees in 25 countries.

The company has four major markets - the US, UK, Northern Europe and Canada.

The largest by far is the US with £9.5bn (€11bn) revenues; the UK has £2bn and the Nordic countries not far behind with £1.9bn.

Its Ferguson brand is the market leader for distribution of heating and plumbing products which accounted for 72pc of its US business, mainly to the trade.

It has 1,400 branches across 50 states, 12 distribution centres and an e-commerce brand

Last year, the US residential and commercial market held up, but the industrial market wobbled, due mainly to the weakness in the oil and gas sector. US profits last year were up 6pc to £775m with a trading margin of 8.2pc.

The UK market is flat for heating and plumbing products, with sales last year of £2bn, down 1pc, as were trading margins at 3.7pc.

Interestingly, the group generates most of its profits from the repairs, maintenance and improvements market, with the plumbing and heating business accounting for almost three quarters of its revenues.

In the Nordic countries Wolseley's key markets are building materials, timber and tool hire.

Finland and Sweden both have a quarter each of the Nordic revenues of £1.9bn, but margins declined and trading profits dropped £12m to £60m.

Following the challenging market conditions and poor performance the company is reviewing its strategy for this reason.

Canada and central European business (a strange mix) includes Switzerland and the Netherlands.

The Canadian revenues account for two thirds of the business with trading profits of £53m.

Group revenue last year was £14.4bn - an 8pc increase. Trading profits were £917m - a record.

Prior to the Brexit result its share traded at £32, but since then investors have warmed to the shares thanks to its dollar earnings. Recently the shares traded at £50, a significant rise from £15 five years ago.

The company is repositioning its UK operation. It plans cutting its head count and closing 80 of its outlets to help improve profits in the face of tough competition and sluggish demand.

While Wolseley is a UK quoted company the bulk of its business and profits come from the US and margins are more than double that of UK and other markets. This will give it a shield from any Brexit problems.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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