Ferguson shares up 7% as it reinstates dividend

FTSE 100 listed heating and plumbing distributor, Ferguson plc (LON:FERG), saw its shares rally almost 7% on Tuesday, on news that it had reinstated its dividend.

The news came as part of its otherwise understated full-year results for the period ended July 31. Revenues were down by 0.9% year-on-year, falling from US$22.01 million to US$21.82 million. Meanwhile, its profits took a more notable hit, down by 4.8%, from US$1.32, to US$1.26 million.

This subdued trend looked to be reflected in its shareholder’s situation, with basic earnings per share falling 11.2%, to 427.5c. However, the company announced it would be reinstating its dividend at 208.2c a share – the same level as in 2019 and 2018.

The Ferguson statement noted that the decision to reinstate the dividend had been made due to the Group’s prospects and ‘strong’ financial position.

The company added that prior to its activity being paused in March, it invested $351 million in six acquisitions.

Ferguson response

Speaking on the update, company Chief Executive, Kevin Murphy, commented:

“We have delivered a strong performance in 2020, which given the global pandemic has highlighted the resilience of our business model. Early in the crisis we moved decisively to protect the health and wellbeing of our associates while continuing to serve our customers supporting critical infrastructure. We have rapidly adjusted our ways of working to adapt to this new operating reality while taking action to lower the cost base. We have also managed working capital and capital expenditure which alongside the strong profit delivery has led to an excellent cash performance.”

And looking towards the future, he added:

“[…] It is impossible to predict the future progress of the virus, or its economic impact and we expect the current levels of uncertainty to continue for the foreseeable future. However, the fundamental aspects of our business model remain attractive and since the start of the new financial year Ferguson has generated low single digit revenue growth in the US in flat markets overall. While we remain cautious on the outlook for the year as a whole, the business is in good shape and well prepared to address any further market related disruption.”

Investor notes

Following the update, Ferguson shares rallied 6.85% or 508.00p, to 7,924.00p apiece 29/09/20 12:00 GMT. Analysts have a majority ‘Hold’ stance on the company, alongside a 6,541.00p consensus target price, and the Marketbeat community offering a 52.97% ‘Outperform’ rating on the stock.

The company has a p/e ratio of 18.45, ahead of the industrials sector average of 11.35.

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Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.