Building support services company Grafton (GFTU) first half results exceeded market expectations, triggering a 2.6% rise in the share price to 796.5p.
The company’s pre-tax profits in the six months to 30 June hit £90m, around a 4% beat on market forecasts and a 19% improvement on its prior year.
As Grafton had previously guided, revenue increased by 9% to £1.4bn on a year-on-year basis.
GROWTH DRIVERS
Grafton runs numerous businesses including builders’ merchant Selco, Buildbase, Plumbase and the recently acquired Leyland SDM, which is a London-based specialist decorators’ store.
The company also has operations in various countries outside the UK including the Netherlands, Belgium and Ireland.
In the UK, its core merchanting business saw like-for-like revenue growth of 1.9% to £976m although growth was hindered by 3% price inflation. Its adjusted operating profit increased by 7.1% to £53.7m, supported by the acquisition of Leyland.
Ireland, which is where the company was originally established in 1902, enjoyed decent growth. On a like-for-like basis, turnover increased by 6.3% to £212.1m. Profits for this region were up 8.7% to £17.1m with its margin improving by 10 basis points to 8.1%.
Its Irish retail brand Woodies, whose slogan is ‘We are all homemakers’, performed extremely well with operating profits up 55% to £7.3m.
The Benelux region was a mixed bag, with the Netherlands enjoying double digit growth while its Belgium business was in contraction.
ANALYSTS’ VIEW
Michael Mitchell, analyst at Davy Research, says he is likely to increase the company’s profit forecasts ‘modestly’ by around 3%, adding ‘this alone sets the stock apart in a sector context’.
Brokers Liberum and Numis are at odds regarding their sector favourite with Liberum preferring Travis Perkins (TPK) as it trades on a lower multiple while Numis retains a view that investors should ‘switch’ to Grafton.
Numis analyst Howard Seymour says ‘Grafton merits a premium rating and share price outperformance to its peer group and remains our favoured stock in the general merchanting universe’.
Using Numis’ forecasts Grafton trades on 12.5-times 2019’s 63.9p of earnings. This is a premium to its sector peers and Travis Perkins which trades on 10-times 2019’s earnings.
