WOLSELEY

WOLSELEY: Buy as the US average 30 Year Fixed Mortgage Rates decline to 4.08

 

• WOS has been a serial Underperformer vs peers and has been in an earnings downgrade cycle. We feel that they are at an end.
• Recent US housing data in May is supportive as it shows we are recovering from the winter lul and we expect this to accelerate in H2. WOS earns 58% of revenue from North America.
• Housing starts unexpected jumped to 13.2% vs 3.2% expected MoM whilst building permits were also better rising 8% vs a modest consensus of 1.3%. The Case Shiller Home price Index also making new highs post recession.
• AIA: Architecture Billings Index increased which is a leading indicator and is showing growth ahead. “The unusually severe weather conditions in many parts of the country have obviously held back both design and construction activity,” “ We are hearing reports of projects that had been previously shelved for extended periods of time coming back online as the economy improves.” AIA Chief Economist Kermit Baker, Hon. AIA, PhD.
• Average 30 Year Fixed Mortgage Rates decline to 4.08 .  With all the talk of US rates declining and what that says about the overall economy (we think it is more a technical and supply issue than showing a slowing economy) the beneficiary will be potential buyers and the rate declines will encourage them to lock in the low rates. Cheaper to borrow better to buy.
• They are also heavily in the renovation market so they don’t just benefit from new builds. All bases covered.
• A hidden gem within Wolseley is Build.com. It is the fastest-growing online home improvement retailer in the US. It is also the 80th largest internet retailer in the United States. In terms of numbers it is not massive on overall revenues. However e-commerce is the future and if you use internet multiples it would have a massive impact on mkt cap. However most analysts don’t even mention it.
• The Sector in the US is becoming a lot more bullish about this quarter and the rest of the year.
• AWI said 2014 was a turning point for the commercial market at the recent Investor Day due to  improving nonresidential data. Saint-Gobain and USG, expect a rebound in 2Q in both commercial and residential activity. Headwaters and AWI both say the construction recovery is still in the early stages with sales bottoming in 2010 and volume bottoming in 2013.
• The NAHB Remodeling Market Index improved  10% YoY for April.
• Q3 Interim Management Statement Tuesday 3 June 2014
• We would be buying them here for the US and european H2 construction recovery