Fiduciary Management, an investment management firm, published its “All Cap Strategy” first quarter 2022 investor letter – a copy of which can be downloaded here. The FMI All Cap Strategy declined approximately 4.5% (gross)/4.6% (net) in the September quarter compared to a 4.32% decline in the iShares Russell 3000 ETF Try to spare some time to check the fund’s top 5 holdings for you to have an idea about their best stock picks this 2022.
In its Q3 2022 investor letter, Fiduciary Management All Cap Strategy mentioned Ferguson plc (NYSE:FERG) and explained its insights for the company. Founded in 1887, Ferguson plc (NYSE:FERG) is a Wokingham, United Kingdom-based multinational plumbing and heating products distributor with a $23.3 billion market capitalization. Ferguson plc (NYSE:FERG) delivered a -37.51% return since the beginning of the year, while its 12-month returns are down by -27.71%. The stock closed at $112.10 per share on November 08, 2022.
Here is what Fiduciary Management All Cap Strategy has to say about Ferguson plc (NYSE:FERG) in its Q3 2022 investor letter:
“Ferguson is the world’s largest distributor of plumbing and heating products to trade professionals with sales and trading profit of $22.8 billion and $2.1 billion, respectively. Following disposals of lower quality international businesses over more than a decade, concluding with the recent sale of the UK business in January 2021, Ferguson’s operations are now entirely focused on the attractive North American market. Ferguson’s sales exposure by end market is split Residential (54%), Commercial (32%), Civil/Infrastructure (7%), and Industrial (7%), with sales further split 60%/40% remodel, maintenance, and improvement (RMI) versus new construction. Ferguson’s U.S. headquarters is in Newport News, Virginia.
Good Business
Ferguson has exited many unprofitable or low-returning businesses over the last decade and reoriented towards organic growth and selective bolt-on acquisitions, driving improved margins and returns on capital. The business is easy to understand, occupies a critical role between fragmented suppliers (over 37 thousand) and customers (over 1 million), and consistently grows 3-4% ahead of the end markets that it serves. The company’s scale, branch density, and distribution footprint provide it with a competitive advantage in terms of purchasing, fulfillment, contractor relationships, and superior service levels versus its fragmented competition. In 2021, approximately 60% of Ferguson’s sales were related to RMI work, which is less cyclical and typically carries higher margins than sales to the new build market. This mix compares favorably with the group’s 31% RMI exposure in 2008. Ferguson’s U.S. business has a terrific long-term track record, with operating profit growing in the double-digits over the trailing 10, 20, and 30-year periods. We believe the customer value proposition and franchise continue to strengthen with scale, which should flow through to improving economics for shareowners. Ferguson maintains a solid balance sheet, and is a strong free cash flow generator, with total cash returns exceeding $9.0 billion over the last decade.
Valuation
The stock trades at 11.3 times forward EPS estimates, approximately two standard deviations below its long-term average and a double-digit discount to its closest U.S. peers. The below average valuation does not adequately reflect the company’s increasingly attractive business mix as well as the continued strengthening of Ferguson’s competitive positioning. Ferguson pays regular and special dividends and recently restarted its share repurchase program (repurchased more than $500
million in the third quarter of fiscal year 2022 alone). (Click here to see the full text)
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Our calculations show that Ferguson plc (NYSE:FERG) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Ferguson plc (NYSE:FERG) was in 32 hedge fund portfolios at the end of the second quarter of 2022, compared to 18 funds in the previous quarter. Ferguson plc (NYSE:FERG) delivered a -7.02% return in the past 3 months.
In October 2021, we published an article that includes Ferguson plc (NYSE:FERG) in 11 Best High Dividend Stocks Under $50. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q3 page.
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Disclosure: None. This article is originally published at Insider Monkey.
