Canaccord lifts Ferguson target price after Q3 update

by | May 20, 2021

Analysts at Canaccord Genuity raised their target price on plumbing and heating products distributor Ferguson from 9,100.0p to 10,000.0p on Thursday, stating “temporary positives” had amplified an already “strong” performance.
Canaccord said Ferguson had reported a very strong set of unscheduled third-quarter results, with the firm enjoying strengthening demand as the US economy reopened with new housing strong, repair, maintenance, and improvement work growing as access to people’s homes improved, and commercial units like education and hospitality being revived.

“Combined with good demand, the group is seeing acute inflation feeding through to finished goods and against a backdrop of tight supply it successfully passed on inflation of circa +5% in Q3 in the US,” noted Canaccord, which also reiterated its ‘hold’ rating on the stock.

“Gross margins saw a 110bps boost and good operational cost control resulted in very strong margins. Cash performance has also been strong with the group paying out the special dividend and making good progress buying back shares during the quarter.”

The Canadian bank noted that with only one quarter of the current financial year remaining, visibility over full-year profits was “relatively good”, with management “substantially” increasing its trading profit guidance as a result.

“As such, we increase our FY2021 full-year estimates, but forecasting FY2022 with confidence is less certain. However, with trends in underlying volumes seemingly good and combined with market share gains and a good pricing environment, we assume further profit progress in the US in FY2022 but do at this point expect margins to edge back as some gross margin boost (stock gains at least) fades and more operational costs feed through,” said Canaccord, which added Ferguson looked to be in “very good shape” to continue to deliver above market growth.

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