Wolseley slumps as Canaccord downgrades stock to 'hold' from 'buy'

“While we continue to see attractions (market share gains, margin expansion and more capital returns) on a medium term view, we are downgrading our rating to hold (from buy) and cutting our price target to £42 on the back of the recent loss of momentum in like-for-like sales growth, in the context of a relatively full valuation,” Canaccord analysts Aynsley Lammin and Matthew Walker said in a note to investors.

The building material supplier reported on Wednesday a 0.4% drop in like-for-like UK sales for the three months to April, due to weakness in the repairs, maintenance and improvement markets. Like-for-like sales in Central Europe fell 0.2%.

Wolseley’s US business reported like-for-like revenue growth of 5%, but has also suffered from weak demand in the industrial market.

“While we expect LFL growth to improve for Q4 as a whole from the +1% of late, the momentum we expected to see in US trading is clearly not coming through as strongly as expected,” UBS said.

“Price deflation continues to be an issue, particularly in the US, with no imminent change in these pricing trends expected.”

The third quarter results come amid a restructuring of the group, which is now estimated will cost about £20m, up from the £15m it originally forecast. In March the company announced it was closing 15 branches in the UK as part of the restructuring.

The group said it was on track to deliver results in line with consensus expectations for the full year to July 2016. But UBS noted that Wolseley also seemed to signal that while it expected some improvement, it thought it was unlikely that like-for-like growth in the US would reach levels close to the guidance range of 5-6% growth over the coming months.

“Given the lack of visibility over the outlook for like-for-like growth, we would prefer to back off for now and look for a more attractive entry point.”

Shares fell 1.52% to 3,770p at 1035 BST.