Grafton shares rise over 2% on UK sales boost
Grafton Group shares rose by over 2% on the back of the builders merchanting business posting better-than-expected first half profits and saying it remains on course to meet full-year growth targets.
The stock, which was up by 5% at one point, was also boosted by Canadian investor Edgepoint Investment Group increasing its stake in the Dublin-headquartered company from 5% to 6.1%.
Grafton said group revenue, for the first six months of this year, amounted to £1.45bn (€1.61bn), 9% ahead on a year-on-year basis.
Operating profit — 17% up at £92.5m — was ahead of market expectations and pre-tax profit and earnings per share both rose by 18% to £87.6m and 30p respectively.
Analyst consensus, for the full year, is for Grafton to generate pre-tax profits of £171m and revenues of £2.89bn; respective increases of 9% and 6.6%.
The strong first-half performance was largely driven by the core UK merchanting division, which contributes nearly 70% to group revenues. It saw 6.7% revenue growth to £976m.
The Irish and Dutch merchanting divisions also saw sales rise — by 7.6% and 18.8% respectively — and the group’s retail revenues, from its Woodie’s DIY chain grew by nearly 16% to £97.8m.
Chief executive Gavin Slark said while further political uncertainty, in the run-up to Brexit, is likely, housebuilding growth and low unemployment is keeping the UK market growing.
Similarly, Grafton is pleased with momentum in Ireland.
Mr Slark said the pace of housebuilding growth here may be slow but is at a sensible level which looks manageable and sustainable.
Mr Slark said Grafton remains on the outlook for acquisition opportunities.
It is unlikely to buy in Ireland, but could look at new geographies as well as strengthening its British and Dutch portfolios. However, Mr Slark said last week’s €160m-raising US private placement announcement, which will widen the group’s funding sources, does not mean Grafton is looking for an operational presence across the Atlantic.
He reiterated that Grafton remains committed to its loss-making Belgian business, which he said is on course to make a small profit this year. First half revenues at the Belgium merchanting business fell by nearly 3% to £45.2m with operating profit down almost 80% at £100,000.
Analysts welcomed the figures. Davy said it will likely increase its full-year profit estimates for Grafton by 2%-3%.
Merrion’s Darren McKinley has raised his share price target, for Grafton, from £8.60 to £9.25, adding it could go as high as £9.75 (it is currently trading at around £7.95) if it weren’t for Brexit risks.
Grafton is outperforming within the industry. When Travis Perkins reported an 11% decline in interim profits a few weeks back, consensus was quick to tar every other construction materials company with the same brush,” he said.
