Wolseley (LSE: WOS), the plumbing and heating products distributor, was hammered by the financial crisis. As fewer houses were built and less finance was available to buy them, demand for its products fell sharply and profits tanked.
Now things are looking up. In fact, Wolseley's finances are so strong that it doesn't know what to do with its cash. It can't find decent companies to buy at reasonable prices. Indeed, last year Wolseley paid out a £350m special dividend and last week it announced that it was going to hand out another £300m.
That's good news for shareholders, and it looks as if profits can keep growing strongly for the next few years. The second phase of the Help to Buy scheme a government subsidy for mortgages to buy existing houses may boost business in Britain, while a recovering American economy augurs well.
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However, much of this is in the price. At 3,165p, the shares trade on nearly 16 times next year's earnings and yield 2.4%. That's no bargain and suggests profits will have to be much higher than currently expected for the shares to make big gains from here.
Verdict: a solid hold
Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.
After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.
In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for Moneyweek in 2010.
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