Canaccord reiterates 'hold' on Wolseley ahead of FY results

Canaccord Genuity on Tuesday reiterated a ‘hold’ rating on Wolseley but raised the target price to 4,340p from 4,150p ahead of its full year results.

“With relatively low UK exposure and a strong balance sheet, Wolseley looks relatively attractive,” said Canaccord analysts Aynsley Lammin and Matthew Walker.

“But, after a strong run in the share price, we struggle to get too excited ahead of its results (27 September).”

Canaccord said the valuation now looks relatively full and there remain risks around the group’s outlook on like-for-like sales growth.

The broker expects the building materials distribution company to meet consensus expectations for the fiscal year 2016. Canaccord predicts operating profit of £933m driven by a good performance in the US.

However, Canaccord believes the focus will be on the outlook for fiscal year 2017, particularly for the US.

"While our fiscal year 2017forecasts look reasonable to us at this point, the key risk for the shares remains US like-for-like growth for 2017 and particularly how any potential US interest rate hike may affect this.

"Despite potentially higher US interest rates remaining a risk, the outlook for the US continues to look relatively healthy, albeit with the rate of growth likely to slow as the cycle matures."

The analysts believe Wolseley should benefit from a positive currency boost in 2017 and should continue to take market share in the US.

While the UK business is likely to continue to be challenging, the group is restructuring this business, Canaccord added.

The broker believes the balance sheet looks “well positioned” to support another £250 to £300m capital return to shareholders.

Shares rose 0.34% to 4,440p at 0938 BST.