As the market uncertainty continues following the Greek election results and growing worries about Spain, a bright spot is building materials group Wolseley.
Its shares are up 31p to £22.07 following suggestions from analysts it could return up to £1.5bn to shareholders. Sam Cullen at Jefferies said:
On current forecast Wolseley will be near debt free by the end of 2012 and will have a significant cash balance by the end of 2013. Management has repeatedly stated the group will not hold excess cash on the balance sheet and, in the absence of a large scale step up in M&A, will return excess cash to shareholders. We theorise that Wolseley has the potential to return anything up to £1.5bn to shareholders by 2013, either as a lump sum or in instalments, creating up to 7% of additional shareholder value.
Following the recent update, he has edged his price target up from £23.40 to £23.90, saying better trading in north America was likely to offset a deteriorating outlook in Europe.
Meanwhile Citigroup said the company could spend up to £2bn on acquisitions or buybacks. Analyst Clyde Lewis said:
A year ago we felt this stock could be worth £45. Today, with a bit more confidence about the margin potential, market share gain opportunities and benefit of balance sheet options, we think the stock could get to £50 by the start of 2015 with some help from market conditions.
We can see the group spending around £2bn on acquisitions and capital returns in the next three years in addition to normal dividend payouts. Depending on the mix, this has the potential to boost 2015 earnings by around 20%-25%, taking our 2015 estimated earnings per share to 375p-390p.
Meanwhile the FTSE 100 is continuing its uncertain path. Early euphoria after the Greek result faded out as Spanish bond yields climbed above 7%, but the index is now edging higher again, up 22 points at 5500.81.
Banks are under pressure on worries that the eurozone's banks have no easy way out of their financial difficulties, with Lloyds Banking Group 0.4p lower at 30.9p and Royal Bank of Scotland down 3.1p at 244.5p.
