Ferguson PLC (LON: FERG)

Ferguson PLC (LON: FERG) is an FTSE 100 index listed distributor of plumbing and heating products. The Company mainly operates in the United States, the United Kingdom and Canada.

Recent Dividend Payments

The Company has a progressive dividend policy to pay out to shareholders, and it will pay an interim dividend of USD 0.84 per share on 06 May 2022, while the ex-dividend date was 25 March 2022. In comparison, FERG had paid an interim dividend of USD 0.729 per share for an equivalent period of the prior year. Hence the interim dividend grew year on year by approximately 15%.

(Source: LSE, chart created by Kalkine Group)

Growth Prospects

• Share Buyback Programme: FERG had repurchased USD 417 million of the USD 1.0 billion share buyback program announced on 28 September 2021. Furthermore, the Company had increased share buyback program by USD 1.0 billion to USD 2.0 billion with the announcement of H1 FY22 results on 15 March 2022. Meanwhile, the Company expects to complete it over the next 12 months.
• Acquisition Benefits: The Company had completed six acquisitions during H1 FY22, four within the second quarter of FY22. Meanwhile, these acquisitions can contribute annualized revenues of USD 235 million.

Key Risks 

• Government Intervention: Changes in government policies and regulations could affect the overall business of the Company.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% in February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion of Ukraine can continue to weigh on the equity market.

Key Fundamental and Shareholders Statistics of Ferguson PLC.

BlackRock Investment Management (UK) Ltd. is the most significant shareholder as it holds nearly 21.68 million shares as of 31 March 2022.      

H1 FY22 Financial Highlights (for the six months ended 31 January 2022, as of 15 March 2022)

(Source: Company Filings)

• Top-Line Business: The Company had anticipated a solid increase of approximately 29.1% in total revenue to USD 13.31 billion during H1 FY22.
• Profitability: On the profitability front, the diluted earnings per share demonstrated a year-on-year growth of around 66.5% during H1 FY22.
• Balance Sheet: Net debt as of 31 January 2022 was USD 2.21 billion.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 04 April 2022 at 08:58 AM GMT+1, FERG’s shares were trading at GBX 10,160.00, down by around 0.20% against the previous day’s closing price. Stock’s 52-week High and Low were GBX 13,640.00 and GBX 8,950.00, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~34.15, illustrating an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company had solid top-line revenue growth and robust bottom-line profitability during H1 FY22, backed by continued market share gains and strong price realization. The Company has a strong cash generation with a well-positioned balance sheet. Moreover, the Company would continue to generate increased returns for the shareholders as it had almost doubled its previously announced share buyback programme. Meanwhile, the Company aims to produce solid revenue growth in the second half of FY22, supported by the market conditions. Overall, the Company remained confident of meeting full-year expectations during FY22.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the solid fundamentals, strong industry dynamics, consistent dividend payments, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Ferguson PLC at the current price of GBX 10,160.00 (as of 04 April 2022 at 08:58 AM GMT+1), with lower-double digit upside potential based on 18.51x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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