Early ‘Trump-flation’ for Wolseley and Ashtead

<p>‘Trump-flation’ is now coming to select UK stocks, though as in the States, these gains look a little too early.</p>

‘Trump-flation’ is now coming to select UK stocks, though as in the States, these gains look a little too early.


For example note sizeable gains since 8th November by shares of two key British construction-related firms with revenues mostly in the states.


Wolseley, the world’s largest heating and plumbing trade distributor on Tuesday trumped challenges elsewhere in the sector, with a 21.2% rise in trading profit to £303m for the quarter ending on 31st October. It also said annual profits would meet previous expectations.

The group is looking to U.S. growth to continue offsetting weakness in the UK and Europe.

Wolseley made 66% of its revenues in the U.S. in its last financial year. It’s hoping to expand that from a boost in spending by Congress of between $3 trillion-$5 trillion over a decade.

Economists predict that equates to the Budget deficit increasing some $400bn per annum, equivalent to c. 2% of GDP.


Ashtead, the British-based industrial machinery rental group, also wants a piece of that American growth pie. It made 86% of sales in the country in its last fiscal year.

The group said on Tuesday half-yearly profit was up 9% to £425m, as it also announced it now expects full year results to “be ahead of our expectations”. In the market, average pre-tax forecasts are around £760.85m.


Because these groups are among the purest U.S. construction plays in the FTSE 100, they’re undoubtedly on to something, but perhaps investors should hold their horses.


For one thing, clearly, there’s more uncertainty than certainty about the fiscal intentions of the quixotic Mr Trump, and a U.S. cyclical growth story is largely a tall tale for now.

Even if seen, the stimulus is largely expected to take the form of tax cuts to high earners, meaning the bulk of savings could well be banked. And, as the recent ramp in benchmark yields suggests, with unemployment below 5%, there’s good chance inflation will rise faster than growth.

If so, the Fed’s hiking path could steepen. Higher rates would dilute at least some of the benefits from stimulus.


Furthermore, Speculation on growth looks even more back-to-front in Wolseley and Ashtead’s case.


Despite projecting steady-to-better-than-forecast earnings, both are emerging from periods of mixed performances. In Wolseley’s case, tough competition and weak European and UK markets have forced it to announce the closure of 10% of UK branches.

The group also had to break the custom of paying out excess cash to shareholders for the first time in four years, whilst underlying U.S. sales for the quarter were actually a bit softer than expected.


Admittedly, Ashtead looks better underpinned as it seizes the day on a U.S. construction rebound.

But on Tuesday, it reversed a planned capex reduction after spending £1.24bn last fiscal year. It now says it will hike capex to £1bn-£1.2bn at constant rates.

That nibbles away more benefits (in UK cost terms) from the weaker pound, after lower ‘fleet’ disposal proceeds in the first half of the current year.

Investors in Wolseley and Ashtead can pat themselves on the back. Since 8th November the shares have risen 12.5% and 27% respectively. But before the outlook for U.S. growth becomes clearer, shareholders should be prepared for a fair wait before shares advance much more.

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