Investors looking to leverage a rebound in the building materials market might find that bathroom fit-out specialist Samuel Heath (HSM:AIM) warrants closer inspection.

From its 1820 origins as a traditional brass founder, Samuel Heath's product line over the years has changed. From bedsteads to high quality giftware and fireside accessories, the company today concentrates on high-end bathroom fittings, taps, showers and architectural hardware.


Full-year results (16 Jul) show a rise in pre-tax profit to £610,00 for the year to the end of March versus £450,000 a year earlier. Yet chairman Sam Heath points out that 'trading has certainly not regained the position of pre-crisis levels.'

This suggests that investors aren't too late to trade this as a recovery stock. Bigger players operating in this space, like Norcros (NXR), already appear to be enjoying the benefits of a recovering UK housing market, despite reporting weakness in the retail sector in July. UK revenues were up 20.6% overall in the year to March.

There are risks to consider with Samuel Heath, nonetheless. The company says sales in the most recent financial year were below that achieved in the comparative trading period and says further turbulent trading may be possible.

At the more commercial end of the RMI (Renovation Maintenance Improvement) market, there are some more reasons to be cheerful. A May 2014 report from Research and Markets says 'despite an upturn in the economy in 2013/early 2014, the medium-term trend in many sectors is away from capital intensive new build projects towards refurbishment and fit-out, which should provide good opportunities for contractors and material suppliers in the medium term.'

Leisure is likely to be a key growth sector and Samuel Heath is well placed to benefit from hotel fit-outs at the higher end of the market, whether refurbishment or new-build.

The group's international business accounted for £4.2 million of a total £10.9 million turnover. Should sterling's strength be maintained, we'd expect some negative impact on earnings due to the unfavourable foreign exchange rate effect on its accounts.

Issue Date: 11 Aug 2014