Ferguson To Divest UK Plumbing Business For £308M

Ferguson has entered into an agreement to divest its UK-based heating and plumbing distribution business, Wolseley UK, to private investment firm Clayton, Dubilier & Rice in a net cash deal worth £308 million ($420 million).

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Ferguson (FERG) disclosed that its board seeks to pay a special dividend to shareholders from all of the net cash proceeds of the sale. The distributor of plumbing and heating products said it will update shareholders on the use of the proceeds of the sale, following the completion of the disposal, which is expected at the end of January 2021.

“The transaction further simplifies the group and allows us to focus entirely on investing in and developing our business across North America where we have the greatest opportunities for profitable growth,” Ferguson CEO Kevin Murphy commented.

In the year ended July 31, 2020, Wolseley UK generated revenue of $1,879 million and underlying trading profit of $8 million on a pre-IFRS 16 basis. Gross assets amounted to $1,093 million. Following the completion of the divestment, future responsibility for the UK defined benefit pension scheme will be retained by Ferguson. As of July 31, 2020, the net pension liability was $27 million on an IAS 19 basis. Excluding the net pension liability, the net operating assets of Wolseley UK as of July 31, 2020 were $378 million.

Ferguson distributes plumbing and heating products to professional contractors mainly operating in North America. Ongoing revenue for the year ended July 31, 2020 was $19.9 billion and ongoing underlying trading profit was $1.6 billion.

Canaccord analyst Aynsley Lammin recently raised the stock’s price target to 9,000p from 8,500p and argued that FERG is well placed to deliver good growth, with a strong balance sheet and valuation supported by US peer group comparison.

However, for now, Lammin stuck to his Hold rating, saying that Ferguson stands out after shares last month climbed to an all-time high and are up 27% on a year-to-date basis driven by the company’s US exposure and good delivery. (See FERG stock analysis on TipRanks)

Overall, the rest of the Street is cautiously optimistic on the stock with a Moderate Buy analyst consensus based on 6 Buys versus 3 Holds. The average price target stands at 9,576.89p and indicates that an additional almost 8% upside potential lies ahead over the coming year.