Ferguson PLC

Ferguson PLC (LON: FERG) is an FTSEEurofirst 300 index listed distributor of plumbing and heating products. The Company mainly operates in the United States, the United Kingdom, and Canada.

On 27 September 2022, FERG expects to release its results for Q4 FY22.

Investment Rationale – SELL at GBX 10,670.00

• Profit Booking: FERG’s stock price has soared over 12% in the past month, and it is presenting a profit booking opportunity.
• Gross Margin Decline: Despite revenue jump, gross margin declined by 60 basis points YoY in Q3 FY22.
• Technical Standpoint: FERG’s stock price is hovering around the upper Bollinger Band, while 14-day RSI (~69.78) reflecting an overbought position.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/EBITDA, EV/Sales, Price/Earnings, Price/Book, and Price/Cash Flow) are overvalued against the Consumer Cyclicals industry.
• Macroeconomic Uncertainties: The market sentiments can remain weak in the short-term due to 40-year high inflation, geopolitical tensions, and political risks. Moreover, the Bank of England (BoE) has increased the interest rates by an aggressive 50 basis points to 1.75%. BoE has also given warning for recession this year.

Share Price Chart  

 (Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative)

Conclusion

Based on the decent notional gains, macroeconomic challenges, coupled with the unfavorable valuation conducted above, a "SELL" recommendation on Ferguson PLC has been given at the current market price of GBX 10,670.00 (as of 18 August 2022, at 11:05 AM GMT+1). 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 18 August 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which 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 5: ‘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 6: Dividend Yield may vary as per the stock price movement.

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