Ferguson soaked and Gleeson joins list of housebuilder pay spats

Monday, June 10, 2019 - 10:13

“Markets were generally in a good mood on Monday after US President Donald Trump backed off from a tariff war with Mexico,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 extended last Friday’s rally with another 0.5% gain to 7,372 thanks to strength among mining stocks and tobacco manufacturers.

“Markets were also strong across mainland Europe, although trading was closed on Germany’s DAX for Whit Monday. In Asia, Hong Kong’s Hang Seng index rallied 2.3%.


“A slowdown in growth has given plumbing products group Ferguson a soaking. Its third quarter organic revenue growth rate has slowed to 2.7% from 6.5% at the half year stage. This is worse than the company’s guidance in March for a reduction in growth to 3% to 5%.

“The UK was the villain of the piece in Q2, as sales fell year-on-year. Now the tables have turned with a revival in UK sales progression and the US going through a much more difficult period. US organic sales growth slowed to 3.3% in the third quarter from 9.7% in the previous three-month period.

“Very wet weather in the US won’t have helped matters, as illustrated by construction sector peer Somero Enterprises last week issuing a weather-related profit warning. And in Canada, Ferguson has been hit by a slowdown in the property market as the government clamps down on mortgage lending.

“There was some thought that management were taking an intentionally conservative view with the cautious guidance at the half-year stage. And now it is clear they weren’t cautious enough.

“A $500m share buyback would imply that management think the shares are cheap and that this is a better way of using excess cash in the business than returning it to shareholders in the form of extra dividends. It may also imply management aren’t overly pessimistic about the outlook.”

MJ Gleeson

“The housebuilding sector seems to be developing a reputation for pay-related spats.

“We’ve seen Jeff Fairburn leave Persimmon following political and shareholder backlash over a gigantic bonus. Berkeley Group fought a shareholder revolt in 2017 over very large payments to various directors. And now we have Jolyon Harrison leave MJ Gleeson over a row regarding his remuneration.

“The housebuilding industry has enjoyed significant profits for many years but is now facing cost inflation and a slowing property market. If that’s not enough, companies in general are under increasing pressure from investors to clamp down on excessive pay.

“Admittedly, Gleeson’s shareholders have enjoyed strong returns since Harrison was made CEO on 1 July 2012. Assuming all dividends were reinvested, Gleeson has returned 728% during his time at the top. That’s nearly 10 times as much as delivered by the FTSE 100 over the same period (73%).

“The fact that Harrison has now gone shows that the board are taking a pragmatic view over remuneration and governance in general, which is to be applauded.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.