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Stock of the week: Ferguson

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Helal Miah, investment research analyst at The Share Centre, explains why the multinational building materials distribution company is the group's share of the week.

This week’s share of the week is FTSE 100-listed Ferguson. Headquartered in Theale, United Kingdom, Ferguson operates in three geographic regions; through 2,310 branches supplying manufacturing products around the world. The group are currently in a transformation phase and recently changed its name from Wolseley to reflect its ascendency in the US markets where the firm generates 89% of its trading profit.

While the UK markets remain challenging – hence the continued restructuring programme, we remain positive on the outlook of the firm. An increased demand for bathroom repair and maintenance combined with recent tax cuts in the United States will boost earnings and potentially increase the market share.

It is not only in the US where Ferguson’s prospects are positive. The company’s Chief Executive John Martin emphasised that commercial market growth is good elsewhere; Canadian markets are also healthy he said. Moreover, the recovery in industrial markets has resulted in positive forecasts that profits for the year will be in line with expectations.

Interim results in March confirmed our confidence; profits rose to $598m on the back of a 7.4% increase in organic revenue growth. As a result of the sale of its Nordic division last year, news of a $4 special dividend reaffirms the stock as a good choice for dividend investors. Meanwhile it declared an interim ordinary dividend of 57.4 cents, up 10% from the previous year.

The future for Ferguson looks positive; with continued geographical expansion and a dedicated restructuring programme geared towards improving customer service, maintaining market share and margins, cutting costs and cash generation. We therefore recommend Ferguson as a ‘buy’ for medium-risk investors.

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