Analysts at Canaccord Genuity raised their target price on plumbing and heating products distributor Ferguson from 8,900.0p to 9,100.0p on Wednesday, stating it now saw signs of more top-line life going into the second half of the trading year.
Canaccord said Ferguson had delivered a “good” first-half performance, with good profit growth, and while the first six months of the year demonstrated how well it managed its cost base and outperformed the wider US market, the other key point the analysts pointed out was the company’s strong balance sheet.
Looking to the second half of the year, Canaccord expects US residential markets to remain “strong” and commercial and industrial markets to improve, with comparatives starting to ease into the third quarter.
The Canadian bank also expects recent commodity price inflation in finished goods to be “increasingly supportive” of the firm’s top line and while it acknowledged that more costs will come back into the business into the fourth-quarter, a good rate of profit drop-through should still be expected.
“The group is now fully focussed on North American markets and we believe it has huge potential to continue to consolidate its markets, outperform the wider market and see incremental margin expansion over the medium term,” said Canaccord, which retained its ‘hold’ rating on the stock.
“The shares have enjoyed a good re-rating as the group has transitioned into essentially a pure US play with the intention to move to a primary US listing, but earnings growth potential over the medium term remains attractive and the currently strong balance sheet is also very supportive,” added the analysts, who noted that with Ferguson’s special dividend, share buyback and interim dividend, it will be returning roughly $1.0bn to shareholders.
