Wolseley Share Discussion Threads

[aquilla] 27/1/2009 10:08

From Digital Look:

"Yesterday's gloomy trading update from Wolsleley prompted broker Numis to comment that trading is "much worse than we expected and a higher level of net debt now seems to make a covenant breach inevitable at year end July 2009".

Collins Stewart reckon that a rights issue is equally inevitable. Both would be bad news for existing shareholders. Sell says the Independent.

Wolseley's operating results, balance sheet and outlook have all deteriorated since its last update so, until the company gets a handle on its debt and reassures the market on its covenants beyond the end of January, avoid adds the Telegraph."

[scburbs] 27/1/2009 08:41

A currency translation is just that when you have your debt in the same currency as your earnings, i.e. your debt goes up, but your ability to service it remains the same as the value of your foreign currency earnings goes up.

However, what WOS are doing is changing debt into sterling (the forward hedging transaction is more sensible). On the amounts that they change they are locking in the current FX rates. This makes it a real increase in debt as their ability to service the debt will depend on a different currency. A dangerous move IMV such that if sterling bounces they will start to look rather silly having all that debt in sterling!

[pictureframe] 27/1/2009 08:07

Any Bulls want to argue the case?

[pictureframe] 27/1/2009 08:01

Added to short

[pictureframe] 27/1/2009 07:57

READ this - banking convenants likely to be breached - still on a PE of 17!!

Way Way Way overvalued short this to sub £1 imo


LONDON -(Dow Jones)- Shares of building materials company Wolseley PLC (WOS.LN) dropped sharply Monday after it posted a 75% drop in pretax profit and warned that it's unlikely to see any upturn in its markets until macroeconomic conditions stabilize.

The company's level of debt also increased, mainly due to the deterioration of sterling in recent months.

In the five-month period to end-December, the company said pretax profit, before exceptional items, amortization and impairment of acquired intangibles, fell 66% - or 75% in constant currency. Group revenue rose 3% on the year, but fell 10% on a constant currency basis.

Wolseley's operations were mainly hurt by lower profitability in its Stock Building Supply, DT Group and Wolseley U.K. units.

The company blamed unprecedented events in the global financial markets and negative gross domestic product trends for further deterioration in the general trading environment in November and December.

It warned that conditions in the U.K. and U.S. will continue to worsen and trading in Continental Europe is likely to remain under pressure as well. As a result, Wolseley slashed headcount by 7,500 during the five-month period, following a 7,100 reduction in the full year to end-July 2008.

At 0813 GMT, Wolseley shares were down 45 pence, or 16%, at 241 pence, in a lower London market. One trader pointed out that, on top of the poor trading statement, Wolseley's debt increased due to currency fluctuations.

The company now faces a potential breach of covenants amid the sharp drop in the value of the pound against the euro and dollar: it has about 48% of its debt in euros and about 14% in dollars, but the covenants are set in sterling.

Chief Executive Chip Hornsby said he hadn't expected such a wide and fast collapse of sterling, and the company was examining ways to reduce debt although he said it was still within its covenants.

Wolseley's net debt has risen 22% since July to GBP3 billion, hurt by a GBP557 million adverse currency exchange effect. It also reported higher gearing of 78%.

But the company reiterated that it has committed and undrawn banking facilities available of over GBP1 billion at Dec. 31 and has no need for additional facilities until after the year ended 31 July 2011.

CEO Hornsby didn't rule out various solutions to the debt problem, including a rights issue or renegotiating covenants, and said he is constantly in talks with debt providers, which include Barclays PLC (BARC.LN), Lloyds Banking Group PLC (LLOY.LN) and Royal Bank of Scotland Group PLC (RBS).

"We are constantly in conversation...but it is nothing out of the routine," said Hornsby, adding "we still feel compliant with our covenants."

Wolseley shares closed Monday at 286 pence valuing the company at GBP1.89 billion. They've lost 25% of their value since the start of the year.

[value viper] 26/1/2009 15:56

not surprised nobody has posted since spob's last contribution

[spob] 26/1/2009 13:28

going to zero

[scburbs] 26/1/2009 13:10

Aquilla,

I see it continuing to fall from here until a refinancing is sorted or a decent equity raise takes place (which the plummeting share price makes increasingly dilutive). Given the rate of deterioriation it is difficult to see them not breaching banking covenants as EBITDA is falling sharply. I note they chose not to quote the Debt/EBITDA ratio which I take to mean they expect to be close to the covenant on 31 January.

After 3 months PBT (before exceptionals) was down 50% on a constant currency basis, after 5 months was down 75%. This indicates the performance in the last 2 months has been dire. They also state they expect things to get worse.

However, having got in at much higher prices the profit I was after has already been made. If WOS continues to fall I will probably continue to realise my profits. WOS is a good company IMV and I don't expect them to go bankrupt and in the current environment I certainly hope they do not. That is not the type of profit I was after, I was looking more at the removal of the strange valuation premium which has now gone.

I certainly won't be opening a fresh short at £2, but that doesn't mean it will not fall sharply from here.

[aquilla] 26/1/2009 12:39

Scburbs, where do you see the share price going from here especially in view of the fact that we could see further dilution:
"The Group will continue to evaluate all of the options and implement the
actions necessary to position the balance sheet appropriately for the medium
term."

[scburbs] 26/1/2009 11:15

Nice! I have taken some profits off the table. There may be further to go, but given I got in at £5 and then topped up at £4+ it is definitely time to crystallise some of those profits. Closed about 25% of my short.

[bozzle2] 26/1/2009 10:56

looking very sad... where is the support?

[value viper] 26/1/2009 10:06

often these babies bounce on update days as shorts going in close etc. not so straight forward on this occasion it would seem !

[aquilla] 26/1/2009 09:32

Commiserations to the longs but I'm glad I had a sizeable short in this one.

[matthewa] 26/1/2009 09:08

scburbs - top call

[m.t.glass] 26/1/2009 08:54

TPK duly plunged with WOS this morning. Their results are out in 4 weeks.

[scburbs] 26/1/2009 08:39

They should have done an equity raise when they had the chance (perhaps they tried and their investors said no thanks lets wait until after the profit warning!). Based on the current share price any equity raise is going to be very dilutive. This is proving to be a very profitable short!

Worryingly for WOS, Ferguson which has been very profitable is starting to slow as well.

"Encouragingly, Ferguson continued to outperform the overall market in the period despite encountering increasingly challenging new residential and RMI markets. However, revenue in US dollars for the five months ended 31 December 2008 was down 10% and underlying trading profit excluding property profits was down around 13%. During the five months to 31 December 2008 Ferguson benefited from the stability of the commercial and industrial market, although during December there were signs of certain segments of the market weakening due to continued scarcity of finance for projects."

[huwrayhenry] 26/1/2009 08:35

yep , got a biggie on this one

[pictureframe] 26/1/2009 08:11

easy short here 3 billion debt for starters !! Watch it fall as news sinks in

[scburbs] 26/1/2009 08:02

So net debt at £3bn and profit before tax (and before the massive exceptional costs that are going to push them into a huge loss) down 75% on a constant currency basis! Not a good statement!

[scburbs] 26/1/2009 08:01

I take back my statement that debt will be just under £3bn!

"Net debt increased by 22% since 31 July 2008 to £3 billion principally due to £557 million adverse effect of currency exchange."



scburbs - 2 Jan'09 - 12:37 - 71 of 89 edit


Based on the 31 July 2008 numbers, Wolseley's debt was 27% US dollars (ouch!), 60% Euro (double ouch!), 13% unknown.

The translational increase in debt is going to be massive. At a guess, if FX rates stay where they are now, there is likely to be a c.£350m adverse movement since 31 October. Depending upon current cashflow this could push them over £3bn of debt!

Now this translational increase is not necessarily a problem if the business is still generating strong profits! (as the value of the profits will increase in sterling terms). A trading statement is due on 26 January to confirm whether this is the case. Personally I am expecting it to be somewhat gloomy and have increased my short position on the back of today's rise.

scburbs - 2 Jan'09 - 13:18 - 72 of 89 edit


My apologies to the Wolseley board as it appears they are FX traders (see below)! This reduces the non-sterling debt to around 55% of the total and reduces the adverse impact (between 1 November and 31 December) to more like £200m, so they should stay under the £3bn level for the moment.

"The Group's overall level of net debt is sensitive to movements in exchange rates. Since July, the US dollar has strengthened markedly against sterling and the euro. Transactions to convert £300 million of US dollar denominated debt and £500 million of euro denominated debt to sterling were completed to reduce the adverse effect of any further depreciation of sterling. The weakness of sterling has had a favourable translation effect on trading profit of £23 million in the first quarter."

[huwrayhenry] 26/1/2009 07:38

TS pretty grim.


Outlook


The Group expects macro economic conditions to deteriorate in the short term,
and until conditions stabilise Wolseley is unlikely to see any upturn in its
markets. Until consumer confidence returns and availability of finance for
customer projects improves, the Group expects performance in North America to
decline. The Group also expects conditions in the UK to continue to deteriorate
with performance in Continental Europe also likely to remain under pressure as
consumer sentiment is further negatively affected by macro economic conditions.
Against the background of deteriorating trading conditions and volatile
financial markets, the Group will continue to concentrate its near term
operational actions on enhanced cash generation and cost reduction.


The Group will continue to evaluate all of the options and implement the actions
necessary to position the balance sheet appropriately for the medium term. The
next few months will be critical in providing further evidence to assess how the
downturn may evolve. The Group's objective is to position itself to be able to
continue to operate competitively, and maintain a level of investment over the
medium term that will ensure the business is well positioned to benefit when the
economies in which it operates stabilise and markets begin to recover.

[huwrayhenry] 24/1/2009 20:00

scburbs - you short?

anyone know the significance of the volume rise we have seen as the price has dropped? good or bad?

increased vol/ break out is good, suppose increased vol/ break down is bad?

anyone seen this before?

[scburbs] 23/1/2009 12:39

Last chance to sell before profit warning or equity raising announcement on Monday?

[scburbs] 19/1/2009 17:45

9% down, I think that is safely in the dive bracket for non-banking stocks.