Merrill Lynch says Ferguson short-term trading to remain slow, valuation unattractive
Bank of America Merrill Lynch downgraded its stance on shares of plumbing products supplier Ferguson to 'neutral' from 'underperform' on Tuesday, arguing that there is limited upside from recent activist involvement and that short-term trading is likely to remain slow at best.
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The bank, which lifted its price target on Ferguson shares to 5,500p from 5,000p, also pointed to an unattractive valuation.
Merrill said the recent rally - largely driven by an activist shareholder building a stake and related market hopes for corporate action - was not justified.
"We struggle to see what an activist could deliver for Ferguson, relative to what management has already done or would consider doing anyway," it said. It noted that management has already been "very" active in the last few years, with the Nordics disposal, cash returns and tax-driven relocations, among other things.
"With close to circa 40% of shareholders in the UK, relisting the company in the US could be challenging to execute without taking the company private first," the bank said.
It added that a sale of the UK business, while a "logical mid-term move", could be difficult in the current environment.
"Other potential changes, such as a large acquisition, would not necessarily create value," Merrill said.
US activist investor Trian Partners revealed back in June that it had built a 6% stake in Ferguson.
At 1250 BST, Ferguson shares were down 2.3% at 5,844p.