Key points:
- Ferguson shares are up near 2% this morning
- FERG announced a further buyback of their own shares
- They’re acting more like an American company even though listed in London
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Ferguson (LON: FERG), (NYSE: FERG) is something of an oddity on the London stock exchange. It’s – in one sense and one sense only – like having an American company that just happens to have a major listing in London. Not only is the business near entirely over in the US, so is much of the manner in which the equity in the company is managed.
The business itself is really the old Wolseley as it grew like Topsy. Unlike many attempts to cross the Atlantic by British businesses this one worked. To the extent that the British business itself was sold off to private equity. Barring some business in Central Europe it’s almost entirely American-focused now. The name change back in 2017 reflected this change.
The business itself is pretty unglamorous, plumbing supplies and the like. Yet there’s good money in water and sewage, they’re the very things that allow urban civilisation to even exist. Very good money is made too.
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But that American focus has led to the company’s capital structure, treatment of shareholders, and so on to be in the American style. Despite that, London listing and inclusion in the FTSE 100.
One piece of evidence of this is that Ferguson share price, rolling around the £100 mark. It’s just one of those things, fashion and absolutely no more, that London share prices tend to be in the £1 to £10 range before there’s either a stock split or a consolidation. New York tends to be in the $10 to $100 range before there’s a stock split or a reverse one. This is why NY ADRs tend to be of 10 pieces of the London stock. It is just fashion, some cultural belief about what a share or stock price should be.
That we’ve a £100 share price in London is a reflection of this. Then so also is the dividend policy – we’d expect better than a couple of percent yield on a business as mature and unglamorous as this. Except this is another of those cultural differences. The shareholder return over there is more likely – not exclusively, just more likely – to come in the form of stock buybacks and so a lower share count than it is in a rising dividend yield as here. It’s past – and less so current – taxation differences that lead to this different approach.
Which is what leads to the announcement today, that transaction in own shares at Ferguson. This is part of the ongoing share buyback programme at Ferguson. Despite that seemingly paltry yield, Ferguson is returning profits, cash flow generated, to shareholders. It’s just doing so in the manner of an American company, through those buybacks, rather than the more British method of a higher dividend yield. Neither’s right or wrong, it’s just a cultural difference, fashion if you prefer.
