market news & Ferguson Full year results
US Markets continued their poor run. The Dow Jones Industrial Average closed 33,618.88 -388 (-1.14%) and the Nasdaq Composite closed 13,063.61 -207.71 (-1.57%). The Nasdaq is now down 7% in September and 9% from its recent high in July. Chinese stocks edged higher after industrial profits improved in August, against expectations of a decline. Japan and Australia fell along with European futures, while US contracts climbed. The yuan strengthened on a higher-than-forecast fixing by the PBOC. Treasuries and Brent rose.
China placed the founder of beleaguered property developer Evergrande under police control, people familiar said. Hui Ka Yan was taken away by Chinese police earlier this month and is being monitored at a designated location. It's the latest sign the Evergrande saga has entered a new phase involving the criminal justice system, after setbacks to its restructuring plan raised the risk of a liquidation.
Emmanuel Macron's government will present a 2024 budget today that tests voter appetite for pouring public money into the climate transition as it withdraws support for inflation-hit households. Investment in green programs is set to rise to €40 billion, while previously promised tax cuts will be delayed and measures that shielded consumers from rising energy prices will be withdrawn.
US bank deposits fell for the first time in data going back to 1994, S&P said. Total deposits slipped 4.8% in the year ended June 30 to about $17.3 trillion as customers pulled out money to invest in higher-yielding alternatives. A series of bank failures also motivated withdrawals.
OpenAI is talking about a possible share sale that would value it at between $80 billion to $90 billion, almost triple its assessed worth earlier this year, the WSJ reported. Separately, former Apple head of hardware design Jony Ive and OpenAI CEO Sam Altman have been discussing building a new AI hardware device, The Information reported. Those talks have also involved Masayoshi Son.
Amazon fell 4% after it was sued by the FTC for allegedly monopolizing online marketplace services. The retailer excluded rivals and illegally forced venders to use its logistics, the suit said. Lina Khan stopped short of explicitly calling for Amazon's breakup, but said her agency will seek to halt the firm's "illegal conduct" if the lawsuit succeeds.
Source: Bloomberg
Ferguson – Full Year Results
Yesterday lunchtime, Ferguson released results for the financial year to 31 July 2023. The company beat expectations in the fourth quarter at both a revenue level ($7.84In response to this update, the shares were marked 4% higher during yesterday’s session.
Ferguson (formerly Wolseley PLC) is a leading specialist distributor in North America, providing expertise, solutions and products from infrastructure, plumbing, and appliances to HVAC, fire, and fabrication. The group sells to customers across residential, commercial, and industrial sectors, with revenue derived from a mix of new construction and repair, maintenance, and improvement (RMI). The business is exposed to several positive structural trends, such as an ageing population, smaller households, and the ageing of housing stocks, which drive demand for new housing and remodelling. The market for the group’s products is exposed to the economic cycle, in particular levels of activity in new construction and property repair. The company reports in US dollars and has its primary share listing in the US.
In the fourth quarter, the group saw a sales decline of 1.7% (with an organic decline of 5.3%) against 21.4% in the prior year growth comparable. The operating margin was 10.0% (10.4% on an adjusted basis) and diluted earnings per share were $2.85 ($2.77 on an adjusted basis). The company declared a quarterly dividend of $0.75 per share, implying an annualized increase of 9% over the prior year. They completed three acquisitions during the quarter, generating annualized revenue of approximately $450 million. Share repurchases of $124 million during the quarter left an outstanding balance of approximately $500 million remaining under the current share repurchase program on July 31, 2023.
For the full year, sales growth was 4.1%, on top of a 25.3% prior year growth comparable, with continued market share gains. The operating margin was 8.9% (9.8% on an adjusted basis) and diluted earnings per share was $9.12 ($9.84 on an adjusted basis). Net cash provided by operating activities was $2.7 billion, an increase of $1.6 billion over the prior year. Total dividends declared were $3.00 per share representing 9% growth over the prior year. The group completed eight acquisitions during the year, generating annualized revenue of approximately $780 million. Share repurchases were $908 million during the year. The balance sheet remains strong with net debt to adjusted EBITDA of 1.0x.
Kevin Murphy, Ferguson CEO, commented “Our teams continued to execute, delivering strong full year results with continued market outperformance, as our balanced business mix served us well in challenging markets. I would like to thank our associates for their unwavering commitment to help make our customers’ complex projects simple, successful and sustainable. As expected, disciplined working capital management drove excellent cash flow in the year. Our cash generative model and strong balance sheet allow us to invest for organic growth, sustainably grow our dividend, consolidate our fragmented markets through acquisitions and return capital to shareholders.
In terms of guidance for 2024 they expect net sales to be broadly flat and an adjusted operating margin of 9.2% - 9.8%. Interest expense is expected to be $190 - $210 million and the adjusted effective tax rate, approximately 25%. Capital expenditure is expected to be in the range of $400 - $450 million. “FY2024 financial guidance reflects a continued challenging market backdrop, particularly in the first half of our fiscal year against strong prior year comparables. Our balanced end market exposure positions us well to leverage emerging multi-year structural tailwinds such as non-residential megaprojects. We remain confident in the strength of our markets over the medium and longer term and expect to capitalize on attractive growth opportunities.”
Source: Bloomberg