MARKET COMMENT
The FTSE's Most Boring Company

By David Kuo (TMFDragon)
September 23, 2003

Which of the UK's top 100 companies is the most boring?

Could it be the cigarette filter maker Bunzl (LSE: BNZL)? Not really, because the outsourced food packaging side of Bunzl affords the company a certain air of excitement. Could it be the drugs distributor Alliance UniChem (LSE: AUN) or perhaps the packaging outfit Rexam (LSE: REX)? Again, these are without a doubt dull companies, but not enough to claim the title of the FTSE's most boring company.

In my opinion, the FTSE's most humdrum outfit is the plumber's merchant Wolseley (LSE: WOS)(NYSE: WOS). It's hard to get enthusiastic about a company whose main business is to supply plumbing and drainage gear in the UK and North America.

But boring is often good when it comes to investing. Investing is not always about gung-ho growth and volatile share prices that get the juices of trigger-happy traders flowing. It is also about slow and steady progress and the payment of regular dividends that, when reinvested, help to swell your investment pot over time.

Wolseley fits that bill to a tee. In Britain it's best known for its 500-strong Plumb Center chain. But that only accounts for a relatively small part of its £8b annual sales, two-thirds of which come from the US.

This morning, Wolseley reported a 3% improvement in annual sales to £8.2b and a rise in net income from £288m to £298m. At the pre-tax level, profits were £456m, better than market estimates. Its dividend has been lifted yet again. Wolseley said it will pay a dividend of 21.2p per share, up from 18.9p last year. 

The company said performance in the UK has been driven by demand from the Repairs, Maintenance and Improvement (RMI) markets. That is not entirely surprising given that DIY arena is reckoned to be one of the fastest growing retail sectors in the UK. The company also said the RMI market in the US is expected to hold up well, though it was cautious about demand from the industrial and commercial sectors.

The company is expected to deliver earnings of 62.6p per share next year. At the current share price of 727.5p the business is valued at 12 times forecast profits, which does not look too expensive. The prospective dividend yield is 3.2%. Furthermore, its level of borrowing is relatively modest with gearing at 47% and interest payments covered 26 times by operating profits.

Wolseley may well be the FTSE's most dreary company in terms of the products that it sells. However, its financial performance has been solid, and let us not forget that this was also the company that gave us the Wolseley motorcar.