Wolseley shares ranked as a 'sell'

Wolseley shares have been ranked as a “sell’ by Hector Forsythe, analyst with stockbroker Evolution Securities, following the group’s gloomy trading update issued yesterday.
 
Forsythe’s estimates to future profits, both in the current trading year and the one after that, have been given the “deep cut” treatment as the analyst says that last year’s profit of £760m is expected to slip to £540m in the current year and will only inch forward to £560m in 2009.
 
“The going in the US is very tough,’ says Forsythe. “France is going to take longer to turnaround than was earlier thought. “
 
Taking these revisions on board, Evolution now looks for pre-tax profit this year to be off by 28%, though this drop is slightly less than the ‘nearly one third lower’ indicated in yesterday’s trading update for the first five months of the year in question.
 
Forsythe adds: “We see little growth appearing next year. This is going to be a difficult ride and we see volatility trending lower with no near-term respite and possibly rising pain as other regions find trading more challenging.
 
“Our main adjustments are to push up losses at Stock [an American division] and ease back Ferguson [another American operation]. Elsewhere we have generally trimmed our growth and margin assumptions and are certainly less optimistic about a jump back in.”
 
The pressure that Wolseley is experiencing doesn't stop it from being a good company, notes the analyst. He envisages Wolseley taking the opportunity to buy weakened competitors, with a second bonus likely to be that the current squeeze forces some other rival players right out of the market.
 
“The bounce back when it comes should be strong,” concludes Forsyth. “The problem is that the struggle looks as if it will last longer than the market had been anticipating.”