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Jefferies stays at 'buy' on Ferguson, sees scope for extra cash and M&A

By Alexander Bueso

Date: Thursday 13 Jun 2019

Jefferies stays at 'buy' on Ferguson, sees scope for extra cash and M&A

(Sharecast News) - Analysts at Jefferies reiterated their 'buy' recommendation for shares of Ferguson on Thursday, highlighting the company's better-than-average growth prospects, inexpensive valuation and the possibility of higher returns to shareholders.
They expected the plumbers' merchant to "consistently deliver growth ahead of its peers" on the back of both volume growth and inflation.

Yes, growth in the US was slowing down, but that had been well flagged by the company for some time now, the analysts said.

"Even after minor downgrades to revenue and trading profit, Ferguson's c.5-6% pa medium-term sales growth remains toward the upper end of its UK and US peers," they explained.

And at 13.0 times' Jefferies's estimate for the company's profits over the next year, the shares were trading at a price-to-earnings discount of approximately 20-25% in comparison to their US rivals', despite the fact that many of its competitors served the same markets,

Indeed, with about half of its end markets being non-residential, Ferguson's client base was more diversified and defensive than rival's.

"Additionally, even after the surprise share buyback of 3Q19, we think the conservative balance sheet suggests scope for more," they said.

Even after factoring in the "surprise" third quarter $500m share buyback, the company's net debt was expected to remain below the lower end of Ferguson´s leverage target of 1.0-2.0 on a net debt-to-earnings before interest, taxes, depreciation and amortisation basis.

"[It is] our view that Ferguson's conservative leverage and robust cash generation underpin its ability to do both M&A and extra cash returns (the current financial year is set for an above-average level of M&A)."

Jefferies trimmed its target price fon Ferguson's shares from 6,130.0p to 6,127.0p.

As of 0836 BST, shares of Ferguson were climbing by 6.06% to 5,632.0p.



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