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Initiating Coverage of Wolseley

Morningstar analysts view Wolseley as poised to benefit from a U.S. housing recovery through its market leading Ferguson business

Holly Cook 9 February, 2012 | 10:47AM

Morningstar has reinstated coverage of heating and plumbing products supplier Wolseley (WOS) with a fair value estimate of 2,400 pence per share. Morningstar equity analyst Paul Choi's valuation is based on expectations of a moderate recovery in new residential and commercial construction and similar growth in replacement activity.

"We think a rebound in U.S. construction demand will lead to moderate increases in volumes and pricing for the firm's plumbing and heating products and building materials, but caution growth in Europe may be delayed for several more periods," writes Choi in his research report. Choi predicts that stronger U.S. growth could mitigate slower growth in France, Sweden, and Denmark for the firm.

Wolseley is the market leader in plumbing and heating distribution in North America and the U.K., and holds leading positions in many of its local markets throughout Eastern and Central Europe. Choi reiterates his view that the company enjoys a narrow economic moat as he still think the firm holds a scale advantage that will regenerate economic profits over the long run. "Although we characterise Wolseley's industry as having low barriers to entry, we think the firm's scale advantage and large distribution network are difficult to replicate," Choi says.

Given Wolseley's current share price of 2,256p (as at February 9, 2012), the stock has a 3-Star rating from Morningstar, denoting that it is broadly fairly valued.

Morningstar Premium Members gain exclusive access to our full Wolseley Analyst Report, including fair value estimate, bull and bear breakdowns, and risk analysis. Not a Premium member? Get the report immediately when you try Morningstar Premium free for 14 days.

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Wolseley PLC3,391.00 GBX-0.76-
About Author Holly Cook

Holly Cook  is Managing Editor of Morningstar.co.uk