A robustly recovering Irish economy again looks set to come to the rescue of builders merchanting and DIY group Grafton (GFTU) in 2016 as another mixed year beckons in the increasingly competitive UK market.
At 728p, shares in the £1.7 billion cap are down the merest of touches after a year-end trading update showed revenue in the 12 months to December up 6.3% at £2.21 billion.
Like-for-like revenues in the UK – which accounts for three quarters of group turnover – were up 3.9%. This was hard won in competitive market conditions, particularly in plumbing and heating. Overall, UK revenue was up 8.9%. Grafton's UK trade outlet is Selco.
Ireland was however the group's strongest performing market with like-for-like revenues growing at a rate of 10.1%. This division accounts for only 12% of group turnover but with growth in house prices and housing transactions supporting good RMI (Renovation, Maintenance and Improvement) spend as the Irish economy continues to recover, it is set to remain a key driver.
It wasn't all good news; Belgium continues to lag but with some kind of European economic bounceback expected this year, its 2% revenue share may get into the black again.
Grafton shares are up 8.1% over the past three months and outperformed overall in 2015 – perhaps more as a corollary of accretive bolt-ons than market conditions, which were decidedly patchy in the UK merchanting space for much of the year.
Peel Hunt, in its 2016 construction sector outlook, notes that in the UK, 'the outlook for RMI work during 2015 has deteriorated from growth of 2.6% at the start of the year to growth of 1.1% currently. While the biggest drop has been seen in the public sector, the expectations for private housing RMI has deteriorated from 4.0% at the start of the year to 2.0% currently.